Pricing and hedging of long-term interest rate sensitive products require to extrapolate the term structure beyond observable maturities. For the resulting limiting term structure we show two results by postulating no arbitrage in a bond market with infinitely increasing maturities: long...

In the standard CAPM with a riskless asset we prove existence of equilibria without assuming concavity of the investor's utility functions. Moreover, we give a uniqueness result using assumptions on the risk aversion of investors.

This paper proposes a new explanation for the smile and skewness effects in implied volatilities. Starting from a microeconomic equilibrium approach, we develop a diffusion model for stock prices explicitly incorporating the technical demand induced by hedging strategies. This leads to a...

We provide three characterizations of the minimal martingale measure P associated to a given d- dimensional semimartingale X. In each case, P is shown to be the unique solution of an optimization problem where one minimizes a certain functional over a suitable class of signed local martingale...

The fluctuation of stock prices is modelled as a sequence of temporary equilibria on a financial market with different types of agents. We summarize joint work with M. Schweizer on the class of Ornstein-Uhlenbeck processes in a random environment which appears in the diffusion limit. Moreover,...

We demonstrate that in a CAPM economy Walras Law and the Tobin Separation Property characterize market demand in finite sets of prices. Consequently, for any number n there exist CAPM economies which have at least n equilibria and hence have n different beta pricing fomulas. It is shown that the...

The Paper reports a basic Experiment on the option pricing approach. Each trader with an increasing utility for money values the option with his arbitrage free price, which is independent of the probability of the stock movement. The experimental data show that the traiders learn to exploit more...

Multi-fractal processes have been proposed as a new formalism for modeling the time series of returns in finance. The major attraction of these processes is their capability of generating various degrees of long-memory in different powers of returns - a feature that has been found to...

This paper reports an option pricing experiment on the binomial model, which has been conducted with professional traders of financial assets. The experimental results are compared to a corresponding experiment with students. The data show that professional traders achieve lower arbitrage...