This paper offers an option pricing framework grouded in econometric microstructure modelling. We consider a model where stock price dynamics follow a pure jump process with constant jump size similar to a binomial setting with random time steps.

The aim of this paper is to analyze the sensitivity of Value at Risk (VaR) with respect to portfolio allocation. We derive analytical expresssions for the first and second derivatives of the Value at Risk, and explain how they can be used to simplify statistical inference and to perform a loval...

We analyze the joint convergence of sequences of discounted stock prices and Radon-Nicodym derivatives of the minimal martingale measure when interest rates are stochastic. Therefrom we deduce the convergence of option values in either complete or incomplete markets. We illustrate the general...

Macroeconomic time series often involve a threshold effect in their ARMA representation, and exhibit long memory features. In this paper we introduce a new class of threshold ARFIMA models to account for this. The threshold effect is introduced in the autoregressive and/or fractional integration...

The Ho and Lee model is the analogue for the study of the term structure of interest rates of the binomial tree introduced by Cox, Ross and Rubinstein in the one risky asset case. This model allows only for a small number of deformations of the term structure between two successive dates, and is...

We propose new closed-form pricing formulas for interest rate options which guarantee perfect compatibility with volatility smiles. These cap pricing formulas are computed under variance optimal measures in the framework of the market model or the Gaussian model and achieve an exact calibration...

We study the dynamics of the spread between U.S. corporate and Treasury bonds. We focus on Aaa and Baa corporate yield indices and estimate nonparametrically the dynamics of the spreads assuming that they follow a univariate diffusion process. Using techniques developed for interest rate...

We consider option pricing when dynamic portfolios are discretely rebalanced. The portfolio adjustments only occur after fixed relative variation of the stock price. The stock price follows a marked point process and the market is incomplete. We first characterize the equivalent martingale...