The numeraire portfolio, also called the optimal growth portfolio, allows simple derivations of the main results of financial theory. The prices of self financing portfolios, when the optimal growth portfolio is the numeraire, are martingales in the 'true' (historical) probability. Given the...

1 Introduction: Economics and Organization of Financial Markets -- Part 1 Basic Financial Instruments -- 2 Basic Finance: Interest rates, Discounting, Investments, Loans -- 3 The Money Market and its Interbank Segment -- 4 The Bond Markets -- 5 Introduction to the Analysis of Interest Rate and...

The martingale approach to pricing contingent claims can be applied in a multiple state variable model. The idea is used to derive the prices of derivative securities (futures on stock and bond futures, options on stocks, bonds and futures) given a continuous time Gaussian multi-factor model of...

The performance of mutual fund or pension fund managers is often evaluated by comparing the returns of managed portfolios with those of a benchmark. As most portfolio managers use dynamic rules for rebalancing their portfolios, we use a dynamic framework to study the optimization of the tracking...

Closed-form solutions for HARA optimal portfolios are obtained in a dynamic portfolio optimization model in three assets (stocks, bonds, and cash) in a Vasicek-type model of stochastic interest rates with correlated stock prices. The HARA is a buy-and-hold combination of a zero-coupon bond with...

The aim of this article is to analyze the portfolio strategies that are mean-variance efficient when continuous rebalancing is allowed between the current date (0) and the horizon (T). Under very general assumptions, when a zero-coupon bond of maturity T exists, the dynamic efficient frontier is...