We study survival, price impact and portfolio impact in heterogeneous economies. We show that, under the equilibrium risk-neutral measure, long-run price impact is in fact equivalent to survival, whereas longrun portfolio impact is equivalent to survival under an agent-specific, wealth-forward measure. These results allow us to show that price impact and portfolio impact are two independent con...

We investigate the existence of affine realizations for Lévy driven interest rate term structure models under the real-world probability measure, which so far has only been studied under an assumed risk-neutral probability measure. For models driven by Wiener processes, all results obtained under the risk-neutral approach concerning the existence of affine realizations are transferred to the ge...

Extending the growing interest in affect in work groups, we propose that groups with distributed information make higher quality decisions when they are in a negative rather than a positive mood, but that these effects are moderated by group members’ trait negative affect. In support of this hypothesis, an experiment (N = 175 groups) showed that positive mood led to lower quality decisions than...

The notion of No Free Lunch with Vanishing Risk (or NFLVR in short) w.r.t. admissible strategies depends on the choice of numeraire. Yan(1998) introduced the notion of allowable strategy and showed that condition of NFLVR w.r.t. allowable strategies is independent of the choice of numeraire and is equivalent to the existence of an equivalent martingale measure for the deflated price process. In...

We find a Stroock formula in the setting of generalized chaos expansion introduced by Nualart and Schoutens for a certain class of Lévy processes, using aMalliavin-type derivative based on the chaotic approach. As applications, we get the chaotic decomposition of the local time of a simple Lévy process as well as the chaotic expansion of the price of a financial asset and of the price of a Euro...

In this paper we review the hedging of interest rate derivatives priced under a risk-neutral measure, and we compute self-financing hedging strategies for various derivatives using the Clark-Ocone formula.

This paper analyzes individual bidding data from a series of sealed-bid auctions in which bidders do not known how many bidders they are bidding against. Unlike previous studies of sealed bid second price auctions with known number of bidders, we find a surprising amount of coincidence with theory. We observe systematic deviations from risk neutral bidding in first price auctions and show that ...

Let X be the solution of a stochastic differential equation driven by a Wiener process and a compensated Poisson random measure, such that X is an L martingale. If H = Φ(Xs; 0 ≤ s ≤ T ) is in L, then H = α+ ∫ T 0 ξsdXs +NT , where N is an L martingale orthogonal to X (the Kunita-Watanabe decomposition). We give sufficient conditions on the functional Φ such that ξ has regular paths (that is, le...

We propose a new mortgage contract that endogenizes the risk of house price declines and thus minimizes default risk resulting from changes in the underlying asset value while still retaining contract rates near the cost of a standard fixed-rate mortgage. Our new mortgage recognizes that the lender is the most economically efficient bearer of house price risk. By reducing the role of the legal ...

We develop a new approach to pricing and hedging contingent claims in incomplete markets. Mimicking as closely as possible in an incomplete markets framework the no{arbitrage arguments that have been developed in complete markets leads us to de ning the concept of pseudo{arbitrage. Building on this concept we are able to extend the no{arbitrage idea to a world of incomplete markets in such a wa...