We develop a method that allows one to compute incomplete-market equilibria routinely for Markovian equilibria (when they exist). The main difficulty to be overcome arises from the set of state variables. There are, of course, exogenous state variables driving the economy but, in an incomplete...

We solve the problems of mean-variance hedging (MVH) and mean-variance portfolio selection (MVPS) under restricted information. We work in a setting where the underlying price process S is a semimartingale, but not adapted to the filtration G which models the information available for...

We solve the problem of mean-variance hedging for general semimartingale models via stochastic control methods. After proving that the value process of the associated stochastic control problem has a quadratic structure, we characterise its three coefficient processes as solutions of...

We study how short-term informational advantages can be monetized in a high-frequency setting, when large inventories are explicitly penalized. We find that if most of the additional information is revealed regardless of the high-frequency traders' actions, then fast inventory management allows...

A classic paper of Borwein/Lewis (1991) studies optimisation problems over L^p_+ with finitely many linear equality constraints, given by scalar products with functions from L^q. One key result shows that if some x in L^p_+ satisfies the constraints and if the constraint functions are...

Monetary risk measures classify a financial position by the minimal amount of external capital that must be added to the position to make it acceptable.We propose a new concept: intrinsic risk measures. The definition via external capital is avoided and only internal resources appear. An...

A P-sigma-martingale density for a given stochastic process S is a local P-martingale Z0 starting at 1 such that the product ZS is a P-sigma-martingale. Existence of a P-sigma-martingale density is equivalent to a classic absence-of-arbitrage property of S, and it is invariant if we replace the...

We investigate a deterministic criterion to determine whether a diffusive local martingale with a single jump and state-dependent characteristics is a uniformly integrable martingale. We allow the diffusion coefficient, the jump hazard rate and the relative jump size to depend on the state and...

At odds with the common “rational expectations” framework for bubbles, economists like Hyman Minsky, Charles Kindleberger and Robert Shiller have documented that irrational behavior, ambiguous information or certain limits to arbitrage are essential drivers for bubble phenomena and financial...

In the data mining and machine learning fields, forecasting the direction of price change can be generally formulated as a supervised classfii cation. This paper attempts to predict the direction of daily changes of the Nasdaq Composite Index (NCI) and of the Standard & Poor's 500 Composite...