Over the years a number of two-factor interest rate models have been proposed that have formed the basis for the valuation of interest rate contingent claims. This valuation equation often takes the form of a partial differential equation that is solved using the finite difference approach. In...

This paper proposes a two factor model for asset pricing. We formulate a model of asset returns that in addition to the traditional market return term includes also the square of the market return to account for risk originating from coskewness with the market portofolio. The quadratic term is...