In this paper, we combine modern portfolio theory and option pricing theory so that a trader who takes a position in a European option contract and the underlying assets can construct an optimal portfolio such that at the moment of the contract's maturity the contract is perfectly hedged. We...

FINANCIAL MODELS WITH LéVY PROCESSES AND VOLATILITY CLUSTERING The failure of financial models has been identified by some market observers as a major contributor to the global financial crisis. More specifically, it's been argued that the underlying assumption made in most of these models-that...