In this paper, we consider a general Lévy risk model with two-sided jumps and a constant dividend barrier. We connect the ruin problem of the ex-dividend risk process with the first passage problem of the Lévy process reflected at its running maximum. We prove that if the positive jumps of the...

This paper proposes a unified framework for portfolio optimization, derivative pricing, modeling and risk measurement in financial markets with security price processes that exhibit intensity based jumps. It is based on the natural assumption that investors prefer more for less, in the sense...

The paper develops a consumption based equilibrium model, focusing on the risk premium and the risk-free interest rate. We derive testable expressions for these quantities, and confront these with sample estimates for the 20. century. Our framework is a dynamic model in continuous time, allowing...

Many financial applications, such as risk analysis and derivatives pricing, depend on time scaling of risk. A common method for this purpose, though only correct when returns are iid normal, is the square–root–of–time rule where an estimated quantile of a return distribution is scaled to a...

This paper considers a class of incomplete financial market models with security price processes that exhibit intensity based jumps. The benchmark or numeraire is chosen to be the growth optimal portfolio. Portfolio values, when expressed in units of the benchmark, are local martingales. In...

This paper proposes a class of financial market models with security price processes that exhibit intensity based jumps. Primary security account prices, when expressed in units of the benchmark, turn out to be local martingales. The benchmark model exludes, so called, benchmark arbitrage but...

We aim at accommodating the existing affine jump-diffusion and quadratic models under the same roof, namely the linear-quadratic jump-diffusion (LQJD) class. We give a complete characterization of the dynamics underlying this class of models as well as identification constraints, and compute...

We study a new class of three-factor affine option pricing models with interdependent volatilitydynamics and a stochastic skewness component unrelated to volatility shocks. Theseproperties are useful in order (i) to model a term structure of implied volatility skews moreconsistent with the data...