An equity market is called “diverse” if no single stock is ever allowed to dominate the entire market in terms of relative capitalization. In the context of the standard Itô-process model initiated by Samuelson (1965) we formulate this property (and the allied, successively weaker notions...

A self-contained theory is presented for pricing and hedging LIBOR and swap derivatives by arbitrage. Appropriate payoff homogeneity and measurability conditions are identified which guarantee that a given payoff can be attained by a self-financing trading strategy. LIBOR and swap derivatives...

We consider a pension plan with the option of early retirement, and paid benefits $\Psi (S,t)$ based on salary S at the time of retirement, but with guaranteed minimum; $S=S(t)$ is a Markov process. Denote by V(S,t) the financial value of the retirement benefits; its formal definition is given...

This paper suggests a short term interest rate model. It incorporates inflation rate, market variance, market net growth rate and market volatility trend. Empirical evidence from different markets supports the model.

We consider a large insurance company whose surplus (reserve) is modeled by a Brownian motion. The company invests its surplus in stock market assets which may or may not contain an element of risk. To minimize the insurance risk there is a possibility to reinsure a part or the whole insurance...

Simple sufficient conditions for the existence of a unique equivalent martingale measure are provided. Furthermore, these conditions give us a handle on situations where an equivalent martingale measure cannot exist. The existence of a unique equivalent martingale measure is of relevance to...