We provide a monotonic transformation of an initial diffusion with a level-dependent diffusion parameter that yields a second, deterministic parameter process. Altering the diffusion parameter while maintaining the original Brownian motion at the expense of the drift can be viewed as a...

This paper studies the implications of absence of arbitrage in economies where: (i) trade takes place in transaction time, (ii) there is a single state variable whose transaction-time price path is binomial, (iii) there are riskfree bonds with calendar-time maturities, and (iv) the relation...

The main objective of this paper is to propose an alternative valuation framework for pricing foreign currency and cross-currency options, which is capable of accommodating existing empirical regularities. The paper generalizes the GARCH option princing methodology of Duan (1995) to a...

This paper looks at three alternative ways of estimating the expected return on the equity market for use either in the CAPM, or other premium model, for estimating equity costs.

In this paper we characterize efficient contingent claims to future consumption (consumption bundles) in multiperiod economies with uncertainty, taking a wide range of market firctions into account.

This paper tests a smart money-noise trader model directly by seeing how well its predictions match the behavior of actual investors.