We study the exponential utility indifference valuation of a contingent claim B in an incomplete market driven by two Brownian motions. The claim depends on a nontradable asset stochastically correlated with the traded asset available for hedging. We use martingale arguments to provide upper and...

This paper sheds light on the influence of exchange rate volatility on foreign direct investment (FDI), both at the theoretical and the empirical level. The novelty of the empirical analysis, which is based on a panel of 27 OECD countries over the period 1982-2002, is to provide evidence of a...

This paper studies modelling and existence issues for market models of option prices in a continuous-time framework with one stock, one bond and a family of European call options for one fixed maturity and all strikes. After arguing that (classical) implied volatilities are ill-suited for...

This paper develops a real options framework to analyze the behavior of stock returns in mergers and acquisitions. In this framework, the timing and terms of takeovers are endogenous and result from value-maximizing decisions. The implications of the model for abnormal announcement returns are...

This paper analyzes the interaction between financial leverage and takeover activity. We develop a dynamic model of takeovers in which the financing strategies of bidding firms and the timing and terms of takeovers are jointly determined. In the paper, capital structure plays the role of a...

In this paper the performance of locally risk-minimizing hedge strategies for European options in stochastic volatility models is studied from an experimental as well as from an empirical perspective. These hedge strategies are derived for a large class of diffusion-type stochastic volatility...

This paper derives an analytic expression for the distribution of the average volatility in the stochastic volatility model of Hull and White. This result answers a longstanding question, posed by Hull and White (Journal of Finance 42, 1987), whether such an analytic form exists. Our findings...

We show that a simple equilibrium model with uncertain growth is able to simultaneously generate patterns in implied volatility and risk aversion that are similar to the ones observed in the data. In addition, the model produces an implied pricing kernel that is increasing for particular levels...

This paper studies modelling and existence issues for market models of stochastic implied volatility in a continuous-time framework with one stock, one bank account and a family of European options for all maturities with a fixed payoff function h. We first characterize absence of arbitrage in...

This paper provides regime-switching stochastic volatility extensions of the LIBOR market model. First, the instantaneous forward LIBOR volatility is modulated by a continuous time homogeneous Markov chain. In a second parameterization, the volatility is modelled by a square root process with a...