Without requiring the existence of an equivalent risk-neutral probability measure this paper studies a class of one-factor local volatility function models for stock indices under a benchmark approach. It is assumed that the dynamics for a large diversified index approximates that of the growth...

This paper considers a modification of the well known constant elasticity of variance model where it is used to model the growth optimal portfolio (GOP). It is shown that, for this application, there is no equivalent risk neutral pricing measure and therefore the classical risk neutral pricing...

This paper considers a new class of Monte Carlo methods that are combined with PDE expansions for the pricing and hedging of derivative securities for multidimensional diffusion models. The proposed method combines the advantages of both PDE and Monte Carlo methods and can be directly applied to...

This paper uses an alternative, parsimonious stochastic volatility model to describe the dynamics of a currency market for the pricing and hedging of derivatives. Time transformed squared Bessel processes are the basic driving factors of the minimal market model. The time transformation is...

We consider different approaches to the problem of numerically inverting Laplace transforms in finance. In particular, we discuss numerical inversion techniques in the context of Asian option pricing.

This paper considers a modification of the well-known constant elasticity of variance model where it is used to model the growth optimal portfolio. It is shown taht, for this application, there is no equivalent risk neutral pricing methodology fails. However, a consistent pricing and hedging...

This paper describes a two-factor model for a diversifed index that attempts to explain both the leverage effect and the implied volatility skews that are characteristic of index options. Our formulation is based on an analysis of the growth optimal portfolio and a corresponding random market...

The paper is based on the observations that stockk index returns of major equity markets are likely to be Student t distributed. It then develops a class of continuous time stochastic volatility models that is consistent with such empirical findings. Furthermore, applying the criterion of local...

The paper provides a numerical comparison of local risk minimisation and mean-variance hedging for some key variations of stochastic volatility models. A hedging and pricing framework is established for both approaches. Important quantitative differences become apparent that have implications...