We provide a monotonic transformation of an initial diffusion with a level-dependent diffusion parameter that yields a second, deterministic parameter process. Altering the diffusion parameter while maintaining the original Brownian motion at the expense of the drift can be viewed as a...

When the underlying price process is a one-dimentional diffucion, as well as in certain restricted stochastic volatility settings, a contingent claim's delta is always bounded by the infimum and supremum of its delta at maturity. Further, if the claim's payoff is convex (concave), then the...

We study the asset pricing implications of an economy where solvency constraints are determined to efficiently deter agents from defaulting. We present a simple example for which efficient allocations and all equilibrium elements are characterized analytically. The main model produces large...

Implications of factor-based asset pricing models for estimation of expecte d returns and for portfolio selection are investigated. In the presence of model mispricing due to a missing factor, the mispricing and the residual covariance matrix are linked together. Imposing a strong form of this...

There are two distinct components to a specialist's price schedule, prices and debths. This paper presents a model of a specialist's problem of choosing prices and debths jointly in order to maximize profits.

New York Stock Exchange specialists disseminate information to market participants by displaying price schedules consisting of quoted prices and depths for both the bid and the ask sides of the market. This paper examines how specialists revise these posted price schedules in response to changes...