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...

Standard Monte Carlo methods can often be significantly improved with the addition of appropriate variance reduction techniques. In this paper a new and powerful variance reduction technique is presented. The method is based directly on the Ito calculus and is used to find unbiased variance...

This paper determines the value of asset tradeability in an option pricing framework. In our model, tradeability is valuable since it allows investors to exploit temporary mis-pricings of stocks. The model delivers several novel insights on the value of tradeability: The value of tradeability is...

This paper determines the value of asset tradeability in an option pricing framework. In our model, tradeability is valuable since it allows investors to exploit temporary mispricings of stocks. The model delivers several novel insights on the value of tradeability: The value of tradeability is...

This paper determines the value of asset tradeability in an option pricing framework. In our model, tradeability is valuable since it allows investors to exploit temporary mis-pricings of stocks. The model delivers several novel insights on the value of tradeability: The value of tradeability is...

This paper determines the value of asset tradeability in an option pricing framework.In our model, tradeability is valuable since it allows investors to exploit temporary mis-pricings of stocks. The model delivers several novel insights on the value of tradeability:The value of tradeability is...

This paper determines the value of asset tradeability in an option pricing framework. In our model, tradeability is valuable since it allows investors to exploit temporary mis-pricings of stocks. The model delivers several novel insights on the value of tradeability: The value of tradeability is...

This paper proposes a new explanation for the smile and skewness effects in implied volatilities. Starting from a microeconomic equilibrium approach, we develop a diffusion model for stock prices explicitly incorporating the technical demand induced by hedging strategies. This leads to a...

The paper considers the continuous time pricing and hedging of European options in the presence of small transaction costs and frequent trading under local risk minimisation. The approach yields mean-self-financing strategies. The resulting dynamical hedges adapt the trading frequency in...