The aim of this article is to nd bounds on the prices of exotic derivatives , and in particular the lookback option, in terms of the (market) prices of call options. This is achieved without making explicit assumptions about the dynamics of the price process of the underlying asset, but rather by inferring information about the potential distribution of asset prices from the call prices. Thus t...

We examine individual harvesters’ preferences for government enforcement of a quota imposed on the exploitation of a common pool resource. We develop a model of Nash behavior by identical risk neutral harvesters to explain individual equilibrium preferences for enforcement of an efficient harvest quota. If the quota is not enforced well, we demonstrate that individual harvesters will always pre...

This article proposes a model for stock prices which incorporates shot-noise effects. This means, that sudden jumps in the stock price are allowed, but their effect may decline as time passes by. Our model is general enough to capture arbitrary effects of this type. Generalizing previous approaches to shot-noise we in particular allow the decay to be stochastic. This model describes an incomple...

The paper proposes the use of the growth optimal portfolio for pricing and hedging in incomplete markets when there are unobserved factors that have to be filtered. The proposed filtering framework is applicable also in cases when there does not exist an equivalent risk neutral martingale measure. The reduction of the variance of derivative prices for increasing degrees of available information...

Risk managers operate in the space of risk and returns, constrained by financial market regulations. How can risk managers assess risk associated with changing regulatory structures, given that theories about the relationship between risk and return are much more developed than theories about the determinants of regulatory constraints? To help risk managers develop insight and predictive abilit...

In this article, we discuss how to generate upper bounds for American or Bermudan securities by Monte Carlo methods. These techniques provide a useful supplement to strategies that provide lower bound estimates (e.g., eqf13-006 and eqf13-025), allowing one to both generate valid confidence intervals for the true option price and to test the accuracy to any proposed approximation to the optimal ...

We present Infrared Space Observatory (ISO) observations of several OH, CH and H2O rotational lines toward the bright infrared galaxies NGC 253 and NGC 1068. As found in the Galactic clouds in Sgr B2 and Orion, the extragalactic far–IR OH lines change from absorption to emission depending on the physical conditions and distribution of gas and dust along the line of sight. As a result, most of t...

Consider the minimization of the following quadratic functional J(u) = E ∫ T 0 [ 〈QtXt,Xt〉dt+ 〈Ntut, ut〉 ] dt+ E〈MXT ,XT 〉, where X is the strong solution to the linear state equation driven by a multidimensional Browinan motion W and a Poisson random martingale measure μ̃(dθ, dt)    dXt = (AtXt +Btut)dt+ d ∑ i=1 (C tXt +D i tut)dW i t

We discuss the difference between locally risk-minimizing and delta hedging strategies for exponential Lévy models, where delta hedging strategies in this paper are defined under the minimal martingale measure. We give firstly model-independent upper estimations for the difference. In addition we show numerical examples for two typical exponential Lévy models: Merton models and variance gamma m...

In a class of informed principal problems with common values, we define iteratively a particular allocation which we call the assured allocation. It is comparatively easy to calculate and straightforward to interpret. It always exists, is unique and continuous in the priors. It is undominated, i.e. effi cient among the different types of the principal subject to the agent’s interim participatio...