In this survey we discuss models with level-dependent and stochastic volatility from the viewpoint of derivative asset analysis. Both classes of models are generalisations of the classical Black-Scholes model; they have been developed in an effort to build models that are flexible enough to cope...

In this paper we analyze in what way the demand generated by dynamic hedging strategies affects the equilibrium prices of the underlying asset. We derive an explicit expression for the transformation of market volatility under the impact of hedging. It turns out that market volatility increases...

Statistical theory has been relatively absent in the exercise of estimating parameters of an option pricing model from cross-sectional data at a fixed point of calendar time. The cross-sectional data typically consists of prices for options at various strikes and maturities at market close. The...

This paper considers multiple market agents who have distinct distributional opinions about the state price density. Different opinions can be contested on a hypothetical market that trades Arrow-Debreu securities. We focus on the situation when the agents are maximizing logarithmic utility as...

The paper contributes to the stochastic volatility literature by developing simulation schemes for the conditional distributions of the price of long term bonds and their variability based on non-standard distributional assumptions and volatility concepts; itillustrates the potential value of...

Commodity style-integration is appealing because by forming a unique long-short portfolio with simultaneous exposure to mildly correlated factors, a larger risk premium can be captured over time than with any of the underlying standalone styles. A practical decision that a commodity...