This paper develops a general theory of irreversible investment of a single firm that chooses a dynamic capacity expansion plan in an uncertain environment. The model is set up free of any distributional or any parametric assumptions and hence encompasses all the existing models. As the first...

This paper discusses the estimation of models of the term structure of interest rates. After reviewing the term structure models, specifically the Nelson-Siegel Model and Affine Term- Structure Model, this paper estimates the terms structure of Treasury bond yields for the United States with...

Hong Kong SAR's government faces the dual challenges of volatile revenue and medium term spending pressures arising from a rapidly aging population. Age-related spending pressures raise long-run sustainability concerns, while revenue volatility creates risks to service provision, possibly...

In this paper we propose new option pricing models based on class of models with jump contain in the Lévy-type based models (NIG-Lévy, Merton-jump (Merton 1976) and Duan based model (Duan 2007)). By combining these different class of models with several volatility dynamics of the GARCH type,...

In this paper we propose new option pricing models based on class of models with jump contain in the Lévy-type based models (NIG-Lévy, Merton-jump (Merton 1976) and Duan based model (Duan 2007)). By combining these different class of models with several volatility dynamics of the GARCH type,...

This paper proposes a new explanation for the smile and skewness effects in implied volatilities. Starting from a microeconomic equilibrium approach, we develop a diffusion model for stock prices explicitly incorporating the technical demand induced by hedging strategies. This leads to a...

The basic model of financial economics is the Samuelson model of geometric Brownian motion because of the celebrated Black-Scholes formula for pricing the call option. The asset volatility is a linear function of the asset value and the model guarantees positive asset prices. We show that the...

The Paper reports a basic Experiment on the option pricing approach. Each trader with an increasing utility for money values the option with his arbitrage free price, which is independent of the probability of the stock movement. The experimental data show that the traiders learn to exploit more...

In this paper we analyze in what way the demand generated by dynamic hedging strategies affects the equilibrium prices of the underlying asset. We derive an explicit expression for the transformation of market volatility under the impact of hedging. It turns out that market volatility increases...

Let X be a seminmartingale and Teta the space of all predictable X-integrable processes teta such that integral tetat dX is inthe space S square of semimartingales. We consider the problem of approximating a given random variable H element of L square (P) by the sum of a constant c and a...