In this paper, we treat output as a decision variable. Moreover, we employ a general form of basis risk. Furthermore, we relax the statistical-independence assumption between the spot price and basis risk.

We provide very simple formulas for pricing both the European and American options.The existing methods of option pricing adopt strong assumptions. Furthermore, they use advanced mathematics to produce controversial pricing methods. The use of mathematically advanced models does not necessarily...

In this paper we present two dynamic models of background risk. We first present a stochastic factor model with an additive background risk. Thereafter, we present a dynamic model of simultaneous (correlated) multiplicative background risk and additive background risk. In so doing, we use a...

We propose novel nonparametric estimators for stochastic volatility and the volatility of volatility. In doing so, we relax the assumption of a constant volatility of volatility and therefore, we allow the volatility of volatility to vary over time. Our methods are exceedingly simple and far...