We develop a theory for option pricing with perfect hedging in an inefficient market model where the underlying price variations are autocorrelated over a time τ⩾0. This is accomplished by assuming that the underlying noise in the system is derived by an Ornstein-Uhlenbeck, rather than from a...

We apply a new simulation scheme proposed by Kusuoka to finance problems. By using this method, we achieve 6500 times faster simulation than traditional Euler–Maruyama scheme.

A new model of a financial market is introduced extending the multidimensional Black-Scholes model to the case where several assets can interact with each other even in the absence of noise. Sufficient conditions for the existence of the equivalent martingale measure, absence of arbitrage and...

We consider a large insurance company whose surplus (reserve) is modeled by a Brownian motion. The company invests its surplus in stock market assets which may or may not contain an element of risk. To minimize the insurance risk there is a possibility to reinsure a part or the whole insurance...

We consider a pension plan with the option of early retirement, and paid benefits $\Psi (S,t)$ based on salary S at the time of retirement, but with guaranteed minimum; $S=S(t)$ is a Markov process. Denote by V(S,t) the financial value of the retirement benefits; its formal definition is given...

An empirical assessment of a continuous time portfolio selection model is studied for the UK economy between 1970 and 1996. The estimates obtained from this study are both statistically significant and consistent with the model's predictions. The estimate of risk aversion parameter refers to low...

The current paper presents a short survey of stochastic models of risk control and dividend optimization techniques for a financial corporation. While being close to consumption/investment models of Mathematical Finance, dividend optimization models possess special features which do not allow...