Pricing kernels implicit in option prices play a key role in assessing the risk aversion over equity returns. We deal with nonparametric estimation of the pricing kernel (Empirical Pricing Kernel) given by the ratio of the risk-neutral density estimator and the subjective density estimator. The...

The relationship between CEO pay and performance has been much analyzed in the management and economics literature. This study analyzes the structure of executive compensation in family and non-family firms. In line with predictions of agency theory, it is found that the share of base salary is...

Dimension reduction techniques for functional data analysis model and approximate smooth random functions by lower dimensional objects. In many applications the focus of interest lies not only in dimension reduction but also in the dynamic behaviour of the lower dimensional objects. The most...

In this article we propose several pathwise and finite difference based methods for calculating sensitivities of Bermudan options using regression methods and Monte Carlo simulation. These methods rely on conditional probabilistic representations which allow, in combination with a regression...

In this paper we propose a Libor model with a high-dimensional specially structured system of driving CIR volatility processes. A stable calibration prodecure which takes into account a given local correlation structure is presented. The calibration algorithm is FFT based, so fast and easy to...

Market option prices in last 20 years confirmed deviations from the Black and Scholes (BS) models assumptions, especially on the BS implied volatility. Implied binomial trees (IBT) models capture the variations of the implied volatility known as "volatility smile". They provide a discrete...

Option pricing models are calibrated to market data of plain vanillas by minimization of an error functional. From the economic viewpoint, there are several possibilities to measure the error between the market and the model. These different specifications of the error give rise to different...

The calibration of option pricing models leads to the minimization of an error functional. We show that its usual specification as a root mean squared error implies fluctuating exotics prices and possibly wrong prices. We propose a simple and natural method to overcome these problems, illustrate...

We study the problem of finding the minimal initial capital needed in order to hedge without risk a barrier option when the vector of proportions of wealth invested in each risky asset is constraint to lie in a closed convex domain. In the context of a Brownian diffusion model, we provide a PDE...