We study the problem of finding the minimal price needed to dominate European-type contingent claims under proportional transaction costs in a continuous-time diffusion model. The result we prove has already been known in special cases - the minimal super-replicating strategy is the least...

We consider the mean-variance hedging problem when asset prices follow ItÆ processes in an incomplete market framework. The hedging numÊraire and the variance-optimal martingale measure appear to be a key tool for characterizing the optimal hedging strategy (see GouriÊroux et al. 1996;...

Let $X$ be a special semimartingale of the form $X=X_0+M+\int d\langle M\rangle\,\widehat\lambda$ and denote by $\widehat K=\int \widehat\lambda^{\rm tr}\,d\langle M\rangle\,\widehat\lambda$ the mean-variance tradeoff process of $X$. Let $\Theta$ be the space of predictable processes $\theta$...

We consider the problem of when to deliver the contract payoff, in a continuous-time principal-agent setting, in which the agent's effort is unobservable. The principal can design contracts of a simple form that induce the agent to ask for the payoff at the time of the principal's choosing. The...

We propose a structural model for the valuation of defaultable securities of a firm which models the effect of deliberate misreporting done by insiders in the firm and unobserved by others. We derive exact formulas for equity and bond prices and approximate expressions for the conditional...

This is a survey paper on techniques and results of the theory of optimal trading for a single agent with a nonlinear wealth process, in a continuous-time model. Examples include the case of policy dependent prices, portfolio constraints and different interest rates for borrowing and lending. We...

The paper studies the problem of hedging European contingent claims in a continuous-time, generalized Black- Scholes-Merton model. Unlike the classical model, we allow price equations to be non-linear; moreover, the return rates and volatility parameters can depend on the wealth and portfolio...

We study effects of using Sharpe ratio as a performance measure for compensating money managers in a dynamic and frictionless market setting. First, we demonstrate that with such a performance measure, the manager's focus on the short horizon performance is detrimental to the investor's long...