Prudent upper and lower valuations from the literature on arbitrage free two price economies provide risk characteristics driving required returns. The risk characteristics assess the risk of price fluctuations. The difference between the upper and lower prudent valuations can be viewed as a...

For mean reverting base probabilities option pricing models are developed using an explicit measure change induced by the selection of a terminal time and a terminal random variable. The models employed are the square root process and an OU equation driven by centered variance gamma shocks. VIX...

When the pricing kernel is U-shaped, then expected returns of claims with payout on the upside are negative for strikes beyond a threshold, determined by the slope of the U-shaped kernel in its increasing region, and have negative partial derivative with respect to strike in the increasing...

Asset returns are modeled by bilateral gamma processes with zero covariations. Covariances are then observed to be consequences of randomness in variations. Support vector machine regressions on prices are employed to model the implied randomness. The contributions of support vector machine...

Portfolios are designed to maximize a conservative market value or bid price for the portfolio. Theoretically this bid price is modeled as reflecting a convex cone of acceptable risks supporting an arbitrage free equilibrium of a two price economy. When risk acceptability is completely defined...

We define the class of local Levy processes. These are Levy processes time changed by an inhomogeneous local speed function. The local speed function is a deterministic function of time and the level of the process itself. We show how to reverse engineer the local speed function from traded...

We analyse the equilibrium asset pricing implications for an economy with single period return exposures to explicit non-Gaussian systematic factors, that may be both skewed and long-tailed, and Gaussian idiosyncratic components. Investors maximize expected exponential utility and equilibrium...

This paper proposes and empirically investigates a family of credit risk models driven by a two-factor structure for the short-interest rate and an additional third factor for firm-specific distress, using the reduced-form framework of Duffie and Singleton (1999). The set of firm-specific...

Options paying the product of put and/or call option payouts at different strikes on two underlying assets are observed to synthesize joint densities and replicate differentiable functions of two underlying asset prices. The pricing of such options is undertaken from three perspectives. The...

The concept of the gamma of a financed return as the highest level of stress that a return distribution can withstand is introduced. The various stress levels passed describe convex cones of acceptable cash flows that start with positive expectation and finish with arbitrage at infinity. Stress...