We consider an investor maximizing his expected utility from terminal wealth with portfolio decisions based on the available information flow. This investor faces the opportunity to acquire some additional initial information G.. The subjective fair value of this information for the investor is...

In this paper, we consider a security market in which two investors on different information levels maximize their expected logarithmic utility from terminal wealth. While the ordinary investor's portfolio decisions are based on a public information flow, the insider possesses from the beginning...

We solve the superhedging problem for European options in an illiquid extension of the Black–Scholes model, in which transactions have transient price impact and the costs and strategies for hedging are affected by physical or cash settlement requirements at maturity. Our analysis is based on...

We propose a new approach to the pricing and hedging of contingent claims under transaction costs in a general incomplete market in discrete time. Under the assumptions of a bounded mean-variance tradeoff, substantial risk and a nondegeneracy condition on the conditional variances of asset...

Let X be a continuous adapted process for which there exists an equivalent local martingale measure (ELMM). The minimal martingale measure P is the unique ELMM for X with the property that local P-martingales strongly orthogonal to the P-martingale part of X are also local P-martingales. We...

This paper gives an overview of results and developments in the area of pricing and hedging contingent claims in an incomplete market by means of a quadratic criterion. We first present the approach of risk-minimization in the case where the underlying discounted price process X is a local...