The forward measure in the discrete time Ho/Lee model is derived and passages to the continuous time limit are carried out under this measure. In particular the continuous time valuation formula for call options on zero coupon bonds is obtained as a limit of its discrete time equivalent as well...

Daily returns of financial assets are frequently found to exhibit positive autocorrelation at lag 1. When specifying a linear AR(l) conditional mean, one may ask how this predictability affects option prices. We investigate the dependence of option prices on autoregressive dynamics under...