In this paper, we study the asymptotic behavior of the sequential empirical process and the sequential empirical copula process, both constructed from residuals of multivariate stochastic volatility models. Applications for the detection of structural changes and specification tests of the...

Building on the work of Schweizer (1995) and Cern and Kallseny (2007), we present discrete time formulas minimizing the mean square hedging error for multidimensional assets. In particular, we give explicit formulas when a regime-switching random walk or a GARCH-type process is utilized to model...

We find the variance-optimal equivalent martingale measure when multivariate assets are modeled by a regime-switching geometric Brownian motion, and the regimes are represented by a homogeneous continuous time Markov chain. Under this new measure, the Markov chain driving the regimes is no...

It can be shown that when the payoff function is convex and decreasing (respectively increasing) with respect to the underlying (multidimensional) assets, then the same is true for the value of the associated American option, provided some conditions are satisfied. In such a case, all Monte...

In this article we find the optimal solution of the hedging problem in discrete time by minimizing the mean square hedging error, when the underlying assets are multidimensional, extending the results of Schweizer (1995). We also find explicit expressions for the optimal hedging problem in...

In this paper, we study the asymptotic behavior of the sequential empirical process and the sequential empirical copula process, both constructed from residuals of multivariate stochastic volatility models. Applications for the detection of structural changes and specification tests of the...

We develop a test of equality between two dependence structures estimated through empirical copulas. We provide inference for independent or paired samples. The multiplier central limit theorem is used for calculating p-values of the Cram´er-von Mises test statistic. Finite sample properties...

We investigate the common practice of estimating the dependence structure between credit default swap prices on multi‐name credit instruments from the dependence structure of the equity returns of the underlying firms. We find convincing evidence that the practice is inappropriate for...

We analyze the robustness properties of the Snell envelope backward evolution equation for the discrete time optimal stopping problem. We consider a series of approximation schemes, including cut-off type approximations, Euler discretization schemes, interpolation models, quantization tree...

We use dynamic programming, finite elements, and parallel computing to design and evaluate two-dimensional financial derivatives. Our dynamic program is flexible, as it divides the evaluation process into two components: one related to the dynamics of the underlying process and the other to the...