Related papers: Incomplete Continuous-time Securities Markets with…
It is believed by the majority today that the efficient market hypothesis is imperfect because of market irrationality. Using the physical concepts and mathematical structures of quantum mechanics, we construct an econophysics framework for…
The possibility of statistical evaluation of the market completeness and incompleteness is investigated for continuous time diffusion stock market models. It is known that the market completeness is not a robust property: small random…
We consider a real options model for the optimal irreversible investment problem of a profit maximizing company. The company has the opportunity to invest into a production plant capable of producing two products, of which the prices follow…
In this paper we propose a new model for volatility fluctuations in financial time series. This model relies on a non-stationary gaussian process that exhibits aging behavior. It turns out that its properties, over any finite time interval,…
We study a problem of optimal investment/consumption over an infinite horizon in a market consisting of two possibly correlated assets: one liquid and one illiquid. The liquid asset is observed and can be traded continuously, while the…
In this paper, we study a time-inconsistent consumption-investment problem with random endowments in a possibly incomplete market under general discount functions. We provide a necessary condition and a verification theorem for an open-loop…
We formulate and analyze an inverse problem using derivatives prices to obtain an implied filtering density on volatility's hidden state. Stochastic volatility is the unobserved state in a hidden Markov model (HMM) and can be tracked using…
We design an optimal strategy for investment in a portfolio of assets subject to a multiplicative Brownian motion. The strategy provides the maximal typical long-term growth rate of investor's capital. We determine the optimal fraction of…
We consider a market with fractional Brownian motion with stochastic integrals generated by the Riemann sums. We found that this market is arbitrage free if admissible strategies that are using observations with an arbitrarily small delay.…
In this paper we derive novel change of variable formulas for stochastic integrals w.r.t. a time-changed Brownian motion where we assume that the time-change is a general increasing stochastic process with finitely many jumps in a bounded…
Let $S^F$ be a $\mathbb{P}$-martingale representing the price of a primitive asset in an incomplete market framework. We present easily verifiable conditions on model coefficients which guarantee the completeness of the market in which in…
We investigate the stability of the Epstein-Zin problem with respect to small distortions in the dynamics of the traded securities. We work in incomplete market model settings, where our parametrization of perturbations allows for joint…
This paper presents an optimal allocation problem in a financial market with one risk-free and one risky asset, when the market is driven by a stochastic market price of risk. We solve the problem in continuous time, for an investor with a…
We consider an investor facing a classical portfolio problem of optimal investment in a log-Brownian stock and a fixed-interest bond, but constrained to choose portfolio and consumption strategies that reduce a dynamic shortfall risk…
We study how trading costs are reflected in equilibrium returns. To this end, we develop a tractable continuous-time risk-sharing model, where heterogeneous mean-variance investors trade subject to a quadratic transaction cost. The…
This paper investigates the problem of maximizing expected terminal utility in a (generically incomplete) discrete-time financial market model with finite time horizon. In contrast to the standard setting, a possibly non-concave utility…
We assume that an individual invests in a financial market with one riskless and one risky asset, with the latter's price following a diffusion with stochastic volatility. In the current financial market especially, it is important to…
We study the continuous time portfolio optimization model on the market where the mean returns of individual securities or asset categories are linearly dependent on underlying economic factors. We introduce the functional $Q_\gamma$…
In this paper, we consider a financial market with assets exposed to some risks inducing jumps in the asset prices, and which can still be traded after default times. We use a default-intensity modeling approach, and address in this…
A stock loan is a contract whereby a stockholder uses shares as collateral to borrow money from a bank or financial institution. In Xia and Zhou (2007), this contract is modeled as a perpetual American option with a time varying strike and…