Let $X$ be a special semimartingale of the form $X=X_0+M+\int d\langle M\rangle\,\widehat\lambda$ and denote by $\widehat K=\int \widehat\lambda^{\rm tr}\,d\langle M\rangle\,\widehat\lambda$ the mean-variance tradeoff process of $X$. Let $\Theta$ be the space of predictable processes $\theta$...

We consider the mean-variance hedging problem when asset prices follow ItÆ processes in an incomplete market framework. The hedging numÊraire and the variance-optimal martingale measure appear to be a key tool for characterizing the optimal hedging strategy (see GouriÊroux et al. 1996;...

We consider the problem of when to deliver the contract payoff, in a continuous-time principal-agent setting, in which the agent's effort is unobservable. The principal can design contracts of a simple form that induce the agent to ask for the payoff at the time of the principal's choosing. The...

Introduction to the Economics and Mathematics of Financial Markets fills the longstanding need for an accessible yet serious textbook treatment of financial economics. The book provides a rigorous overview of the subject, while its flexible presentation makes it suitable for use with different...

We perform a detailed asymptotic analysis of the equilibrium behavior of the asset prices, wealth size and portfolio weights in complete markets equilibria, with long-lived funds. In equilibrium, the fund with the (closest to) log preference will dominate the other funds in size, in the...

This paper is concerned with nonlinear filtering of the coefficients in asset price models with stochastic volatility. More specifically, we assume that the asset price process $ S=(S_{t})_{t\geq0} $ is given by \[ dS_{t}=r(\theta_{t})S_{t}dt+v(\theta_{t})S_{t}dB_{t}, \] where...

We determine the minimum cost of superreplicating a nonnegative contingent claim when there are convex constraints on portfolio weights. We show that the optimal cost with constraints is equal to the price of a related claim without constraints. The related claim is a dominating claim, that is,...

In the context of complete financial markets, we study dynamic measures of the form \[ \rho(x;C):=\sup_{\nu\in\D} \inf_{\pi(\cdot)\in\A(x)}{\bf E}_\nu\left(\frac{C-X^{x, \pi}(T)}{S_0(T)}\right)^+, \] for the risk associated with hedging a given liability C at time t = T. Here x is the initial...