The Esscher transform is an important tool in actuarial science. Since the pioneering work of Gerber and Shiu (1994), the use of the Esscher transform for option valuation has also been investigated extensively. However, the relationships between the asset pricing model based on the Esscher...

We use a supply-demand approach to value energy products exposed to emission cost uncertainty. We find closed form solutions for a number of popularly traded energy derivatives such as: forwards, European call options written on spot prices and European Call options written on forward contracts....

The price of a risky asset § is described by a Markov diffusion with jumps. In general there may be many equivalent martingale measures. Contingent claims which depend on the price of § at some time "T" may not be attainable, and the market may not be complete. However, using a martingale...

In this paper we use the Cox, Ingersoll, and Ross (1985b) single-factor, term structure model and extend it to the pricing of American default-free bond puts. We provide a quasi-analytical formula for these option prices based on recently established mathematical results for Bessel bridges,...

The exponential of a scalar diffusion is considered. Point estimates of the diffusion coefficient can be obtained by considering proportional increments of different powers of the exponential. an investigation of the minimum variance estimator gives unique optimal power. Copyright 1993 Blackwell...

It is shown how, even when the market is incomplete, certain contingent claims are attainable: that is, they can be represented as stochastic integrals with respect to the process which describes the evolution of the asset prices. Copyright 1995 Blackwell Publishers.

In this paper we propose a type of mean reverting model with jumps, where the mean reverting level changes according to a continuous time, finite state Markov chain. This model could be applied to the interest rate and energy markets. We apply filtering techniques and obtain finite dimensional...

In this paper we develop a method for pricing derivatives under a Markov switching version of the Heston-Nandi GARCH (1, 1) model by using a well known tool from actuarial science, namely the Esscher transform. We suppose that the dynamics of the GARCH process switch over time according to one...

A Hidden Markov Chain (HMC) is applied to study the forward premium puzzle. The weekly quotient of the interest rate differential divided by the log exchange rate change is modeled as a Hidden Markov process. Compared with existing standard approaches, the Hidden Markov approach allows a...

We investigate the optimal investment timing strategy in a real option framework. Depending on the state of the economy, whose changes are modeled by a Markov chain, the investment cost can take one of two values. The optimal investment timing decision is determined by finding the free boundary...