We present a new method of estimating the asset stochastic volatility and return. In doing so, we overcome some of the limitations of the existing random walk models, such as the GARCH/ARCH models.

In this paper, we examine the interaction among the investment, production and hedging decisions. In so doing, we provide simple formulas that enable the firm, at any point in time, to quantify the impact of one decision on another and thus modify its strategy accordingly.

In this paper, we introduce an incomplete-market dynamic investment model with a correlated background risk. In so doing, we show the impact of background risk on the investment decisions.