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...

Multivariate versions of the law of large numbers and the central limit theorem for martingales are given in a generality that is often necessary when studying statistical inference for stochastic process models. To illustrate the usefulness of the results, we consider estimation for a...

East-West migration in Germany peaked at the beginning of the 90s although the average wage gap between Eastern and Western Germany continues to average about 25%. We analyze the propensity to migrate using microdata from the German Socioeconomic Panel. Fitting a parametric Generalized Linear...

By extending the GARCH option pricing model of Duan (1995) to more flexible volatility estimation it is shown that the prices of out-of-the-money options strongly depend on volatility features such as asymmetry. Results are provided for the properties of the stationary pricing distribution in...

A primary goal in modelling the dynamics of implied volatility surfaces (IVS) aims at reducing complexity. For this purpose one fits the IVS each day and applies a principal component analysis using a functional norm. This approach, however, neglects the degenerated string structure of the...

The economic theory of option pricing imposes constraints on the structure of call functions and state price densities (SPDs). Except in a few polar cases, it does not prescribe functional forms. This paper proposes a nonparametric estimator of option pricing models which incorporates various...