An optimal investment problem is solved for an insider who has access to noisy information related to a future stock price, but who does not know the stock price drift. The drift is filtered from a combination of price observations and the privileged information, fusing a partial information...

In this paper, I study the equilibrium pricing of asset shares in the presence of dynamic private information. The market consists of a risk-neutral informed agent who observes the firm value, noise traders and competitive market makers who set share prices using the total order flow as a noisy...

We use the Cox process (or a doubly stochastic Poisson process) to model the claim arrival process for catastrophic events. The shot noise process is used for the claim intensity function within the Cox process. The Cox process with shot noise intensity is examined by piecewise deterministic...

We propose a model for trading in emission allowances in the EU Emission Trading Scheme (ETS). Exploiting an arbitrage relationship we derive the spot prices of carbon allowances given a forward contract whose price is exogenous to the model. The modeling is done under the assumption of no...

Dye [J Account Res 23 (1985) 123] showed that the optimal disclosure policy, when a manager is randomly endowed with perfect private information, is upper tailed, i.e., the manager only discloses firm value above an appropriate cutoff level. We interpret this strategically as an optimal exercise...

Financial modelling in the area of option pricing involves the understanding of the correlations between asset and movements of buy/sell in order to reduce risk in investment. Such activities depend on financial analysis tools being available to the trader with which he can make rapid and...

The aim of this paper is to investigate the properties of stochastic volatility models, and to discuss to what extent, and with regard to which models, properties of the classical exponential Brownian motion model carry over to a stochastic volatility setting. The properties of the classical...

We present an economically motivated two-factor term structure model that generalizes existing stochastic mean term structure models. By allowing a certain parameter to acquire dynamical behavior we extend the two-factor model to obtain a nonlinear three-factor model that is shown, in a...

Evidence from the financial markets suggests that empirical returns distributions, both historical and implied, do not arise from diffusion processes. A growing literature models the returns process as a Levy process, finding a number of explicit formulae for the values of some derivatives in...

The classical Black-Scholes analysis determines a unique, continuous, trading strategywhich allows one to hedge a financial option perfectly and leads to a unique pricefor the option. It assumes, however, that there are no transaction costs involved in implementingthis strategy, and the stock...