We study arbitrage opportunities in diverse markets as introduced by R. Fernholz in [2]. By a change of measure technique we are able to generate a variety of diverse markets. The construction is based on an absolutely continuous but non-equivalent measure change which implies the existence of...

This paper investigates the impact of heterogeneous beliefs of professional investors on the currency options market. Using a unique data set with detailed information on the foreign-exchange forecasts of about 50 market participants over more than ten years, we construct an empirical proxy for...

In this paper we solve an intertemporal portfolio problem with correlation risk, using a new approach for the simultaneous modeling of stochastic correlation and volatility. The solutions of the model are in closed form and include an optimal portfolio demand for hedging correlation risk. We...

In the standard real options approach to investment under uncertainty, agents formulate optimal policies under the assumptions of risk neutrality or perfect capital markets. However in most situations, corporate executives face incomplete markets either because they receive compensation packages...