This paper is a contribution to the literature on the explanatory power and calibration of heterogeneous asset pricing models. We set out a new stochastic market-fraction asset pricing model of fundamentalists and trend followers under a market maker. Our model explains key features of financial...

We suggest an improved FFT pricing algorithm for discretely sampled Asian options with general independently distributed returns in the underlying. Our work complements the studies of Carverhill and Clewlow [Risk, 1990, 3(4), 25-29], Benhamou [J. Comput. Finance, 2002, 6(1), 49-68], and Fusai...

Since employee stock option grants have some features that do not fulfill the Black-Scholes assumptions, we use a severance incorporating model to capture its main properties that specify the price and reload condition. Generally, the employee is exposed to various severance risks such as...

“Mine is a long and sad tale”, said the Mouse, turning to Alice and sighing. “It is a long tail certainly,” said Alice, looking down with wonder at the Mouse's tail; “but why do you call it sad?” And she kept on puzzling about it while the mouse was speaking … Financial risk...

Stochastic volatility models such as those of Heston [Rev. Financial Stud., 1993, 6(2), 327-343] and Hull and White [J. Finance, 1987, 42(2), 281-300] are often used to model volatility risk in the pricing and hedging of contingent claims on risky assets. Recent empirical evidence has shown that...

New perspectives on consumption-based asset pricing models have recently been argued to provide powerful insights for explaining the cross-sectional variation of expected returns. In this paper, we employ both Spanish and U.S. capital markets data to present further evidence on these new...

An exact valuation formula for defaultable corporate coupon bonds is proved. The model incorporates discrete coupons, bankruptcy costs, taxes and the market risk generated by a stochastic risk-free structure. The aim of this paper is twofold: first, we generalise previous pricing models for...

We have developed a regime switching framework to compute the Value at Risk and Expected Shortfall measures. Although Value at Risk as a risk measure has been criticized by some researchers for lack of subadditivity, it is still a central tool in banking regulations and internal risk management...

In the paper, a finite sample test is suggested for detecting changes in the composition of the global minimum variance portfolio. The exact density of the test statistic is calculated. It appears that under the null hypothesis of no change, it is independent of the parameters of the asset...

We propose an approach to the estimation of the parameters of stochastic discount factor (SDF) models which is based on the idea that the next period joint distribution of the variables in a SDF and asset returns can be well approximated by their joint historical distribution. The estimates of...