Financial markets are typically characterized by high (low) price level and low (high) volatility during boom (bust) periods, suggesting that price and volatility tend to move together with different market conditions/states. By proposing a simple heterogeneous agent model of fundamentalists and...

In the years following the publication of Black and Scholes [7], numerous alternative models have been proposed for pricing and hedging equity derivatives. Prominent examples include stochastic volatility models, jump diffusion models, and models based on Levy processes. These all have their own...

In this paper we exploit global analysis to explore welfare properties of a standard one-commodity GEI, under different notions of constrained Pareto optimality. In a unifying framework we revise and extend some of the leading results of the literature on incomplete markets and government...

We propose an objective for the firm in a model of production economies extending over time under uncertainty and with incomplete markets. We derive the objective of the firm from the assumption of initial-shareholders efficiency. Each shareholder is assumed to communicate to the firm her...

In an economy with a non-atomic measure space of assets and exchangeable risks, the Arbitrage pricing Theory (APT) holds exactly; and factors are structurally specified, which allows for an economic interpretation.

Equilibrium paths in an economy of overlapping generations are determinate. Time is either discrete or continuous; in either case, it extend into the infinite future and, possibly, the infinite past. There is one, nonstorable commodity at each date. The economy is stationary; intertemporal...

The paper discusses the problem of hedging not perfectly replicable contingent claims by using a benchmark, the numerraire portfolio, as reference unit. The proposed concept of benchmarked risk minimization generalizes classical risk minimization, pioneered by Follmer, Sondermann and Schweizer....

This paper addresses the question of the selection of multivariate GARCH models in terms of variance matrix forecasting accuracy with a particular focus on relatively large scale problems. We consider 10 assets from NYSE and NASDAQ and compare 125 model based one-step-ahead conditional variance...

We assess the predictive accuracy of a large number of multivariate volatility models in terms of pricing options on the Dow Jones Industrial Average. We measure the value of model sophistication in terms of dollar losses by considering a set 248 multivariate models that differ in their...

This paper investigates the sensitivity of asset and portfolio price volatility with respect to the minimum available trading interval that the price is quoted. The objective of the study is to find the theoretical impact of high frequency trading on asset and portfolio volatilities, using a...