We introduce a heterogeneous agent asset pricing model in continuoustime to show that trend chasing, switching and herding all contribute to market volatility in price and return and volatility clustering, but their impact are different. On the one hand, the fluctuations of market price and...

In this paper we consider the evaluation of American call options on dividend paying stocks in the case where the underlying asset price evolves according to Heston’s (1993) stochastic volatility model. We solve the Kolmogorov partial differential equation associated with the driving...

What can traders learn and how does learning affect the market? When information is asymmetric, short-lived, and uninformed traders learn, we present an artificial limit order market model to examine the effect of learning, information value, and order aggressiveness on information dissemination...

This paper examines the effect of behavioral sentiment in a limit order market when agents are risk averse and arrive in the market with different time horizons. The order submission rules with respect to order type and size are determined by maximizing the expected utility of agents with...

We consider the problem of hedging a European-type option in a market where asset prices have jump-diffusion dynamics. It is known that markets with jumps are incomplete in the context of Harrison and Pliska (1981) and that there are several risk-neutral measures one can use to price and hedge...

By employing a continuous time stochastic volatility model, we analyse the dynamic relation between price returns and volatility changes in the commodity futures markets. We use an extensive daily database of gold and crude oil futures and futures options to estimate the model that is well...

The Fujii Shimada Takahashi theorem for pricing derivatives collateralized in a foreign currency is reviewed.