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...

This paper compiles basic components of the construction of random groups and of the proof of their properties announced in [G10]. Justification of each step, as well as the interrelation between them, is straightforward by available techniques specific to each step. On the other hand, there are several ingredients that cannot be truly appreciated without extending the present framework. We sha...

Did the unification of commercial and investment banking heighten risk in financial markets due to moral hazard of borrowers? In a simple intertemporal model with moral hazard and uninsured risk, we argue that if financial contracts are properly written, the integration in financial markets could give rise to greater risk sharing arrangement and could eliminate the equity risk premium attribute...

Quenched and Annealed Ising Spin Glass by Pierluigi Contucci SISSA/ISAS Via Beirut 4, 34014 Trieste , Italy and Universit a di Roma \La Sapienza", Dipartimento di Fisica G10 Teorico P.le Aldo Moro, 00185 Rome, Italy Abstract Using the cluster expansion technique, we estimate, uniformly in the volume, the difference between the quenched and annealed free energy in the high temperature phase of a...