Most time series models used in econometrics and empirical finance are estimated withmaximum likelihood methods, in particular when interest centers on density and Value{at{Risk (VaR) prediction. The standard maximum likelihood principle implicitly placesequal weight on each of the observations...

We study a number of large international military conflicts sinceWorld War II where we establish a news analysis as a proxy for theestimated likelihood that the conflict will result in a war. We findthat in cases when there is a pre-war phase, an increase in the warlikelihood tends to decrease...

We analyze numerically the superreplication problem and the associatedhedging strategy in an illiquid binomial market. We prove theexistence of an optimal feedback strategy for European and barrier optionsand compute it numerically by means of a dynamic programmingprinciple. We exhibit that the...

We propose a technique to avoid spurious detections of jumps in highfrequencydata via an explicit thresholding on available test statistics. Weprove that it eliminates asymptotically all spurious detections. MonteCarlo results show that it performs also well in finite samples. In DowJones...

Many postulated relations in finance imply that expected asset returns should monotonicallyincrease in a certain characteristic. To examine the validity of such a claim, onetypically considers a finite number of return categories, ordered according to the underlyingcharacteristic. A standard...

The Markowitz problem consists of finding in a financial market a self-financingtrading strategy whose final wealth has maximal mean and minimal variance. Westudy this in continuous time in a general semimartingale model and under coneconstraints: Trading strategies must take values in a...

The paper examines questions of local asymptotic stability of randomdynamical systems. Results concerning stochastic dynamics ingeneral metric spaces, as well as in Banach spaces, are obtained. Theresults pertaining to Banach spaces are based on the linearization ofthe systems under study. The...

We develop a discrete-time stochastic volatility option pricing model, which exploits the informationcontained in high-frequency data. The Realized Volatility (RV) is used as a proxy of the unobservablelog-returns volatility. We model its dynamics by a simple but effective long-memory process:...

Limited liability creates a conict of interests between policyholders and shareholders ofinsurance companies. It provides shareholders with incentives to increase the risk of theinsurer's assets and liabilities which, in turn, might reduce the value policyholders attach toand premiums they are...

An equivalent !-martingale measure (E!MM) for a given stochastic process Sis a probability measure R equivalent to the original measure P such that S isan R-!-martingale. Existence of an E!MM is equivalent to a classical absenceof-arbitrage property of S, and is invariant if we replace the...