This paper shows that high frequency trading may play a dysfunctional role in financial markets. Contrary to arbitrageurs who make financial markets more efficient by taking advantage of and thereby eliminating mispricings, high frequency traders can create a mispricing that they unknowingly...

This paper extends and refines the Jarrow et al. (2006, 2008) arbitrage free pricing theory for bubbles to characterize forward and futures prices. Some new insights are obtained in this regard. In particular, we: (i) provide a canonical process for asset price bubbles suitable for empirical...

This paper compares structural versus reduced form credit risk models from an information based perspective. We show that the difference between these two model types can be characterized in terms of the information assumed known by the modeler. Structural models assume that the modeler has the...

In this paper, we study the valuation of American type derivatives in the stochastic volatility model of Barndorff-Nielsen and Shephard (2001). We characterize the value of such derivatives as the unique viscosity solution of an integral-partial differential equation when the payoff function...

We extend a linear version of the liquidity risk model of Cetin et al. (2004) to allow for price impacts. We show that the impact of a market order on prices depends on the size of the transaction and the level of liquidity. We obtain a simple characterization of self-financing trading...

A traditional model for financial asset prices is that of a solution of a stochastic differential equation, driven by Brownian motion and Lebesgue measure; that is, a standard diffusion. The classic Black-Scholes model is a special case of this rubric. In some situations, however, such a model is...

A parameterized family of financial market models is presented. These models have jumps intrinsic to the price processes yet have strict completeness, equivalent martingale measures, and no arbitrage. For each value of the parameter $\beta (-2\leq\beta 0)$ the model is just as rich as the...