The paper presents a financial market model that generates stochastic volatility using a minimal set of factors. These factors, formed from transformations of square root processes, model the dynamics of different denominations of a benchmark portfolio. Benchmarked prices are assumed to be local...

Standard Monte Carlo methods can often be significantly improved with the addition of appropriate variance reduction techniques. In this paper a new and powerful variance reduction technique is presented. The method is based directly on the Ito calculus and is used to find unbiased variance...

This paper considers the realistic modelling of derivative contracts on exchange rates. We propose a stochastic volatility model that recovers not only the typically observed implied volatility smiles and skews for short dated vanilla foreign exchange options but allows one also to price payoffs...

Recursive marginal quantization (RMQ) allows the construction of optimal discrete grids for approximating solutions to stochastic differential equations in d-dimensions. Product Markovian quantization (PMQ) reduces this problem to d one-dimensional quantization problems by recursively...

This paper suggests a short term interest rate model. It incorporates inflation rate, market variance, market net growth rate and market volatility trend. Empirical evidence from different markets supports the model

In an arbitrage-free financial market, asset prices (including dividends) should not exhibit jumps of a predictable magnitude at predictable times. We provide a rigorous formulation of this result in a fully general setting, without imposing any semimartingale restriction and only allowing for...

This paper introduces a more general modeling world than available under the classical no-arbitrage paradigm in finance. New research questions and interesting related econometric studies emerge naturally. To explain in this paper the new approach and illustrate first important consequences, we...