We introduce and study no-good-deal valuation bounds defined in terms of expected utility. A utility-based good deal is a payoff whose expected utility is toohigh in comparison to the utility of its price. Forbidding good deals induces, viaduality, restrictions on pricing kernels and thereby...

We study the exponential utility indifference valuation of a contingent claim B in an incomplete market driven by two Brownian motions. The claim depends on a nontradable asset stochastically correlated with the traded asset available for hedging. We use martingale arguments to provide upper and...

The estimation of multivariate GARCH models remains a challenging task, even in modern computer environments. This manuscript shows how Independent Component Analysiscan be used to estimate the Generalized Orthogonal GARCH model in a fraction of the time otherwise required. The proposed method...

In this paper we show that reputation formation in endogenously formed relationships is a decisive determinant for the existence and performance of credit markets. In theabsence of any third party enforcement of debt repayment the contracting parties succeed in establishing stable bilateral...

While the debate on how economic agents form expectations and how these expectationsshould be modelled has been key to modern macroeconomics, money illusion has been ananathema to macroeconomists until recently. The rational expectations revolution in the1970's thoroughly banned the study of...

This paper studies modelling and existence issues for market models of option prices in a continuous-time framework with one stock, one bond and a family of European call options for one fixed maturity and all strikes. After arguing that (classical) implied volatilities are ill-suited for...

World power and gas markets have a natural relationship with global tradable carbon permits markets, including the U.S. Clean Air Act Amendments and the EU Emissions Trading Scheme, the latter officially launched in January 2005. Electric utilities operate their power plants based in part on the...

A resampling method based on the bootstrap and a bias-correction step is developed for improving the Value-at-Risk (VaR) forecasting ability of the normal GARCH model. Compared to the use of more sophisticated GARCH models, the new method is fast, easy to implement, numerically reliable, and,...

Based on the notion of a quantile unbiased estimating function, this paper develops a general method for conducting exact small-sample inference in models which allow the estimator of the (scalar) parameter of interest to be expressed as the root of an estimating function, and which is...

Closed-form, trivially evaluated approximations for the density and cumulative distribution function of the doubly noncentral t distribution are developed based on saddlepoint methods. They exhibit remarkable accuracy throughout the entire support of the distribution and are vastly superior to...