We introduce a simple extension of a shifted geometric Brownian motion for modelling forward LIBOR rates under their canonical measures. The extension is based on a parameter uncertainty modelled through a random variable whose value is drawn at an in¯nitesimal time after zero. The shift in...

In this paper, we consider the problem of hedging a contingent claim on a stock under transaction-costs and stochastic volatility. Extensive research during the last two decades has clearly demonstrated that the volatility of most stocks is not constant over time. Writers of over-the-counter...