We propose a modification of the option pricing framework derived by Borland which removes the possibilities for arbitrage within this framework. It turns out that such arbitrage possibilities arise due to an incorrect derivation of the martingale transformation in the non-Gaussian option models...

We develop a new class of utility functions, SAHARA utility, with the distinguishing feature that it allows absolute risk aversion to be non-monotone and implements the assumption that agents may become less risk averse for very low values of wealth. The class contains the well-known exponential...

This paper presents a new approach to the pricing and hedging problem for contingent claims in incomplete markets. We assume that traders wish to maximize the expected final payoff of the hedging portfolio and the claims, and we avoid the use of utility functions. Instead, we model how traders...

Inflation hedging is an important issue for long-term investors, even during prolonged periods of relatively low inflation. This study analyzes the inflation-hedging properties of US stocks, bonds, and T-bills at the subindex level during the years 1983–2012. Our analysis provides only partial...