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We refer by threshold Ornstein-Uhlenbeck to a continuous-time threshold autoregressive process. It follows the Ornstein-Uhlenbeck dynamics when above or below a fixed level, yet at this level (threshold) its coefficients can be…
We consider a linear stochastic differential equation with stochastic drift and multiplicative noise. We study the problem of approximating its solution with the process that solves the equation where the possibly stochastic drift is…
This paper studies a one-sector optimal growth model with i.i.d. productivity shocks that are allowed to be unbounded. The utility function is assumed to be non-negative and unbounded from above. The novel feature in our framework is that…
In this paper we introduce a class of information-based models for the pricing of fixed-income securities. We consider a set of continuous- time information processes that describe the flow of information about market factors in a monetary…
In a continuous time stochastic economy, this paper considers the problem of consumption and investment in a financial market in which the representative investor exhibits a change in the discount rate. The investment opportunities are a…
We study the identification of dynamic discrete choice models with sophisticated, quasi-hyperbolic time preferences under exclusion restrictions. We consider both standard finite horizon problems and empirically useful infinite horizon…
A pricing formula for discount bonds, based on the consideration of the market perception of future liquidity risk, is established. An information-based model for liquidity is then introduced, which is used to obtain an expression for the…
We propose an axiomatic approach which economically underpins the representation of dynamic preferences in terms of a stochastic utility function, sensitive to the information available to the decision maker. Our construction is iterative…
This paper presents an axiomatic approach to finite Markov decision processes where the discount rate is zero. One of the principal difficulties in the no discounting case is that, even if attention is restricted to stationary policies, a…
Price determination is a central research topic of revenue management in marketing. The important aspect in pricing is controlling the stochastic behavior of demand, and the previous studies have tackled price optimization problems with…
In this paper, we consider an infinite horizon, continuous-review, stochastic inventory system in which cumulative customers' demand is price-dependent and is modeled as a Brownian motion. Excess demand is backlogged. The revenue is earned…
Recent empirical studies suggest that the volatility of an underlying price process may have correlations that decay slowly under certain market conditions. In this paper, the volatility is modeled as a stationary process with long-range…
We study identification of dynamic discrete choice models with hyperbolic discounting. We show that the standard discount factor, present bias factor, and instantaneous utility functions for the sophisticated agent are point-identified from…
A problem of optimal debt management is modeled as a noncooperative game between a borrower and a pool of lenders, in infinite time horizon with exponential discount. The yearly income of the borrower is governed by a stochastic process.…
In this survey paper we discuss recent advances on short interest rate models which can be formulated in terms of a stochastic differential equation for the instantaneous interest rate (also called short rate) or a system of such equations…
Rough stochastic volatility models have attracted a lot of attentions recently, in particular for the linear option pricing problem. In this paper, starting with power utilities, we propose to use a martingale distortion representation of…
We introduce an extension to Merton's famous continuous time model of optimal consumption and investment, in the spirit of previous works by Pliska and Ye, to allow for a wage earner to have a random lifetime and to use a portion of the…
This paper investigates the optimal management of an aggregated defined benefit pension plan in a stochastic environment. The interest rate follows the Ornstein-Uhlenbeck model, the benefits follow the geometric Brownian motion while the…
Spot option prices, forwards and options on forwards relevant for the commodity markets are computed when the underlying process S is modelled as an exponential of a process {\xi} with memory as e.g. a L\'evy semi-stationary process.…
This paper proposes a target zones exchange rate model with a terminal condition of entering a currency zone. It is assumed that the exchange rate is a function of the fundamental and time. Another essential assumptions of the model is that…