The basic model of financial economics is the Samuelson model of geometric Brownian motion because of the celebrated Black-Scholes formula for pricing the call option. The asset's volatility is a linear function of the asset value and the model garantees positive asset prices. In this paper it...

This article studies four transform pricing methods in the context of general equilibrium (GE) framework. The four methods, viz. the Esscher transform, indifference pricing, the Wang transform, and the standard deviation loading, are popular among actuarial literature and practice. The transform...

This paper proposes a robust approach to hedging and pricing in the presence of market imperfections such as market incompleteness and frictions. The generality of this framework allows us to conduct an in-depth theoretical analysis of hedging strategies for a wide family of risk measures and...

Recent empirical evidence suggests that the variance risk premium predicts aggregate stock market returns. We demonstrate that statistical finite sample biases cannot “explain” this apparent predictability. Further corroborating the existing evidence of the U.S., we show that country...

The ad hoc Black-Scholes (AHBS) model is one of the most widely used option valuation models among practitioners models. The main contribution of this study is methodological. We have two main results: (1) we make the empirical observation that typically the call and put sneers are discontinuous...

Recent empirical evidence suggests that the variance risk premium predicts aggregate stock market returns. We demonstrate that statistical finite sample biases cannot “explain” this apparent predictability. Further corroborating the existing evidence of the U.S., we show that country...

This paper takes an innovative look at the relationship between the pricing of commodity futures contracts and its relation to storage and speculation. Fifteen commodities are analyzed over the time period from 1990 to 2010. Contrary to other studies, we analyze temporary and permanent futures...

In this paper we examine the nonlinear relation between the EUA price and its fundamentals, such as energy prices, macroeconomic risk factors and weather conditions. By estimating a Markov regime-switching model, we find that the relation between the EUA price and its fundamentals varies over...

The relationships between crude and product prices are crucial throughout oil markets and especially so within the refining industry, where they define the refinery margin between cost of inputs (crudes) and value of outputs (products). The oil market is global but regional factors are also...

We propose a new numerical scheme for a class of one-dimensional reflected stochastic differential equations (SDEs) by virtue of their explicit solutions, which enables us to carry out the simulation of this class of reflected SDEs by simulating some related SDEs without reflections. The new...