This review illustrates the interaction between law and finance in the particular case of the taxation of constructive sales. The focus is on the treatment of variable prepaid forward contracts and the rules regarding these instruments articulated by Revenue Ruling 2003-7 and the recent case...

The aim of this study is to analyse the impact of dilution and dividends on the goodness of fit of warrant pricing valuation models, to the Portuguese warrants market. In order to avoid modelling bias over the research design, and to test dividend and dilution effects we decided to keep this...

Standard derivative pricing theory is based on the assumption of agents acting as price takers on the market for the underlying asset. We relax this hypothesis and study if and how a large agent whose trades move prices can replicate the payoff of a derivative security. Our analysis extends...

In this paper we discuss subdiffusive mechanism for the description of some stock markets. We analyse the fractional Black–Scholes model in which the price of the underlying instrument evolves according to the subdiffusive geometric Brownian motion. We show how to efficiently estimate the...

In this paper we consider a generalization of one of the earliest models of an asset price, namely the Black–Scholes model, which captures the subdiffusive nature of an asset price dynamics. We introduce the geometric Brownian motion time-changed by infinitely divisible inverse subordinators,...

A huge number of financial institutions and companies use the options in risk management. A particularly important issue that arises when it comes to options is fixing their value. In this paper we present the classical models for valuing options: Black-Scholes model and binomial model....

The volatility estimation is a crucial problem for pricing derivatives. The traditional implied volatility approach induces the undesired smile effect and is therefore inconsistent with the market reality. A second more realistic approach is due to Bensoussan, Crouhy and Galai (1995) who derive...

We develop a new approach to approximating asset prices in the context of continuous-time models. For any pricing model that lacks a closed-form solution, we provide a closed-form approximate solution, which relies on the expansion of the intractable model around an “auxiliary” one. We...

We identify and explain a structural change in the relation between crude oil futures prices across contract maturities. As recently as 2001, near- and long-dated futures were priced as though traded in segmented markets. In 2002, however, the prices of one-year futures started to move more in...