The mispricing of the deep-in-the money and deep-out-the-money generated by the Black and Scholes model is now well documented in the literature. In this paper, we discuss different option valuation models on the basis of empirical tests carry out on the French option market. We examine methods...

Surprisingly, a positive risk–return relationship has not been consistently observed for the traditional GARCH in the mean model in other studies. In this paper, we employ a combination of the jump diffusion and GARCH model in the mean equation to test the risk–return relationship for U.S....

The class of reduced form models is a very important class of credit risk models, and the modeling of the default dependence structure is essential in the reduced form models. This paper proposes a thinning-dependent structure model in the reduced form framework. The intensity process is the...

In a setting where the lender and the borrower have heterogeneous beliefs about the likelihood of a disastrous shock to the borrower's economy, we study the debt contract that defaults at the occurrence of that shock, as proposed by Barro (2006). We find that a higher belief by the lender...

We analyze the portfolio planning problem of an ambiguity averse investor. The stock follows a jump-diffusion process. We find that there are pronounced differences between ambiguity aversion with respect to diffusion risk and jump risk. Ignoring ambiguity with respect to jump risk causes larger...

This paper proposes an integrated analytical framework consisting of the following three steps: (1) investigation of consumers’ preferences, (2) prediction of technology diffusion by taking into account consumers’ preferences, and (3) estimation of CO2 emission reduction caused by the...