Building blocks -- It's dilemma -- Stochastic differential equations -- The factor model approach to arbitrage pricing -- Constructing a factor pricing framework -- Equity derivatives -- Interest and credit derivatives -- Hedging -- Computation of solutions -- The road to risk neutrality -- Index

The classical finance problem of dynamically hedging a short option in a discrete time environment with transaction costs has generally been approached through either a sub-optimal analytical solution with an instantaneous horizon or through the formulation of a long term horizon dynamic program...

Although much research has been devoted to portfolio optimization, starting with the seminal work of Markowitz (1952), relatively little has been focused on corporate bond portfolio optimization, particularly when there are multiple bonds in which to invest. In this paper, we propose a...