Fractional Brownian motion has been suggested as a model for the movement of log share prices which would allow long-range dependence between returns on different days. While this is true, it also allows arbitrage opportunities, which we demonstrate both indirectly and by constructing such an...

Volatility estimators based on high, low, opening and closing prices have been developed, and perform well on simulated data, but on real data they frequently give lower values for volatility than the simple open-close estimator. This may be due to the fact that for real data, the maximum (or...

The modeling of credit events is in effect the modeling of the times to default of various names. The distribution of individual times to default can be calibrated from CDS quotes, but for more complicated instruments, such as CDOs, the joint law is needed. Industry practice is to model this...

In this paper, we develop the idea that firm sizes evolve as log Brownian motions dSt = St(σdWt + μdt) where the constants μ, σ are characteristics of the firm, chosen from some distribution, and that the firms are wound up at some random time. At any given time, we see a firm of a given...

The potential approach is a general and simple method for modelling interest rates, foreign exchange rates, and in principle other types of financial assets. This paper takes data on some liquid interest rate derivatives, and fits potential models using a small finite-state Markov chain as the...

In this paper we solve the hedge fund manager's optimization problem in a model that allows for investors to enter and leave the fund over time depending on its performance. The manager's payoff at the end of the year will then depend not just on the terminal value of the fund level, but also on...

In the econometrics of financial time series, it is customary to take some parametric model for the data, and then estimate the parameters from historical data. This approach suffers from several problems. Firstly, how is estimation error to be quantified, and then taken into account when making...