The Sato process model for option prices is expanded to accomodate credit considerations by incorporating a single jump to default occuring at an independent random time with a Weibull distribution. Explicit formulas for bid and ask prices are derived. Liquidity considerations are captured by...

Minimal discounted distorted expectations across a range of stress levels are employed to model risk acceptability in markets. Interactions between discounting and stress levels used in measure changes are accommodated by lowering discount rates for the higher stress levels. Acceptability...

Optimal portfolios of variance swaps are constructed taking account of both autocorrelation and cross asset dependencies. Market prices of variance swaps are extracted from option surface calibrations. The methods developed permit simulation of cash flows to arbitrary portfolios of variance...

Prices in financial markets must move continuously and surprisingly to support their levels with returns. Consequently the function announcing the arrival rate of moves of different sizes becomes the equilibrium object, necessitating a reformulation of risk reward concepts in these terms. It is...

Models of dependence in asset returns with non-Gaussian marginals are investigated on ETF daily return data. The first is a full rank Gaussian copula. The second is a linear mixture of independent Lévy processes. The third correlates Gaussian components in a variance gamma representation. On a...

The paper provides a new hedging methodology permitting systematic hedging choices with wide applications. Dynamic concave bid price, and convex ask price functionals from the recent literature are employed to construct new hedging strategies termed dynamic conic hedging. The primary focus of...