We mentioned in Chapter 2 that the factor process X(t) in our models has two possible interpretations. Its components Xi(t) may represent observable data series, either financial data such as stock indices, bond yield spreads etc., or macroeconomic data such as GDP growth, employment data or...

In the preceding chapter we showed that in a model with Gaussian diffusion factors the asset allocation problem reduces, via the change of measure technique, to a controlled diffusion problem in the factor process, even though there are jumps in the asset price model. The problem can be handled...

An important feature of the diffusion-based models presented in Part I is that they can be solved analytically, and as such do not require additional work to get the optimal investment strategy and the value function (aside from solving a Riccati equation and a linear ODE)…

The following sections are included:IntroductionFinancial Market, Investment Portfolio and BenchmarkDynamic Programming and the Value FunctionExistence of a Classical (C1,2) Solution Under Affine Drift AssumptionsExistence of a Classical (C1,2) Solution Under Standard Control AssumptionsFund...

Most of the assets on the balance sheet of typical banks are illiquid. This exposes banks to liquidity risk, which is one of the key risks for banks. Since the value of assets is determined by their risks, liquidity risk should be included in valuation. This paper develops a valuation framework...

The financial crisis of the late 2000's highlighted the importance of strengthening risk management systems in financial markets. Consequently, an increasing interest in strategies to quantify risk under extreme scenarios has spawned. One of such techniques is CrashMetrics, a methodology for...

In merger transactions the value of the share exchange ratio is essential, because it affects the distribution of the benefits of the merger. The aim of this study is to analyze the impact of announcements of the agreed by boards share exchange ratios on the valuation of shares of companies...

We analyze the effect of cross-country differences in accounting standards on the empirical performance of financial pricing models. We show how the lack of uniform accounting standards across countries generates inconsistent estimates of the model parameters, and leads to rejection of the...

The main objective of this paper is to analyze the impact of uninformative communications on asset prices. An experimental approach allows us to control for the release of a priori uninformative messages. We introduce the release of messages in standard experimental asset markets with bubbles...

This paper investigates the profile of the individual investor in warrants. It is concluded that the average investor in warrants has a greater level of financial literacy and a greater appetite for risk. It is also concluded that higher experience in stock trading and the investment in foreign...