We solve, by using a monotone and stable approximation, the fully nonlinear degenerate parabolic equation derived by Cheridito, Soner and Touzi [8] from the stochastic control problem of super-replicating a contingent claim under gamma constraints. We present some numerical results.

We propose a framework for analyzing the credit risk of secured loans with maximum loan-to-value covenants. Here, we do not assume that the collateral can be liquidated as soon as the maximum loan-to-value is breached. Closed-form solutions for the expected loss are obtained for nonrevolving...

We propose a model for analyzing dynamic pairs trading strategies using the stochastic control approach. The model is explored in an optimal portfolio setting, where the portfolio consists of a bank account and two co-integrated stocks and the objective is to maximize for a fixed time horizon,...

This paper examines three alternative approaches to valuing real options: (1) the standard option pricing technique using "risk-neutral" probabilities; (2) the use of risk-adjusted discount rates; and (3) discounting certainty-equivalent values with a riskless discount rate. As suggested by the...