In this paper, we show how to construct dynamic forward rate models in terms of exogenously specified eigenfunctions (or factor loadings). We also show how to link forward rate models with different number of driving Brownian motions to each other in a way consistent with the implied...

In this paper we consider a Black and Scholes economy and show how the Malliavin calculus approach can be extended to cover hedging of any square integrable contingent claim. As an application we derive the replicating portfolios of some barrier and partial barrier options. Copyright 2002...

In this article we apply the Flesaker--Hughston approach to invert the yield curve and to price various options by letting the randomness in the economy be driven by a process closely related to the short rate, called the abstract short rate. This process is a pure deterministic translation of...

Characterization of the American put option price is still an open issue. From the beginning of the nineties there exists a non-closed formula for this price but nontrivial numerical computations are required to solve it. Strong efforts have been done to propose methods more and more...

The paper considers a Black and Scholes economy with constant coefficients. A contingent claim is said to be simple if the payoff at maturity is a function of the value of the underlying security at maturity. To replicate a simple contingent claim one uses so called delta-hedging, and the...

This paper formally analyses two exotic options with lookback features, referred to as extreme spread lookback options and look-barrier options, first introduced by Bermin. The holder of such options receives partial protection from large price movements in the underlying, but at roughly the...

In this paper we extend Merton's (1975) classic stochastic version of the Ramsey model by allowing the government to control the expected growth rate of the labor supply. We characterize the solution to this control problem for general time-separable preferences, and derive an analytical...