We propose a new approach to the pricing and hedging of contingent claims under transaction costs in a general incomplete market in discrete time. Under the assumptions of a bounded mean-variance tradeoff, substantial risk and a nondegeneracy condition on the conditional variances of asset...

Stochastic Volatility (SV) models are widely used in financial applications. To decide whether standard parametric restrictions are justified for a given dataset, a statistical test is required. In this paper, we develop such a test based on the linear state space representation. We provide a...

In this paper we motivate, specify and estimate a model in which the intra-day volatilty process affects the inter-transaction duration process and vice versa. In order to solve the estimation problems implied by this interdependent formulation, we first propose a GMM estimation procedure for...

Motivated by a nonparametric GARCH model we consider nonparametric additive regression and autoregression models in the special case that the additive components are linked parametrically. We show that the parameter can be estimated with parametric rate and give the normal limit. Our procedure...

We determine the increase of the maximum risk over the minimax risk in the case that the optimally robust estimator for the false radius is used. This is done by numerical solution of the implicit equations which determine optimal robustness, for location, scale, and linear regression models,...

We consider simple models of financial markets with regular traders and insiders possessing some extra information hidden in a random variable which is accessible to the regular trader only at the end of the trading interval. The problems we focus on are the calculation of the additional utility...

Credit risk refers to the risk of incurring losses due to unexpected changes in the credit quality of a counterparty or issuer. In this paper we give an introduction to the modeling of credit risks and the valuation of credit-risky securities. We consider individual as well as correlated credit...

We introduce the notion of a convex measure of risk, an extension of the concept of a coherent risk measure defined in Artzner et aL (1999), and we prove a corresponding extension of the representation theorem in terms of probability measures on the underlying space of scenarios. As a case...

We study an extension of the classical B1ack-Scholes model which accounts for feedback effects from trading in an imperfectly elastic market. The proposed semi-martingale model may be viewed as a compromise between the diffusion approach in, e.g., (Cuoco and Cvitanic 1998), (Cvitanic and Ma...