In this article we consider a special case of an optimal consumption/optimal portfolio problem first studied by Constantinides and Magill and by Davis and Norman, in which an agent with constant relative risk aversion seeks to maximise expected discounted utility of consumption over the infinite...

The subject of this paper is an optimal consumption/optimal portfolio problem with transaction costs and with multiple risky assets. In our model the transaction costs take a special form in that transaction costs on purchases of one of the risky assets (the endowed asset) are infinite, and...

Given a Brownian motion (Bt)t[greater-or-equal, slanted]0 and a general target law [mu] (not necessarily centered or even in ) we show how to construct an embedding of [mu] in B. This embedding is an extension of an embedding due to Perkins, and is optimal in the sense that it simultaneously...

The aim of this article is to find bounds on the prices of exotic derivatives, and in particular the lookback option, in terms of the (market) prices of call options. This is achieved without making explicit assumptions about the dynamics of the price process of the underlying asset, but rather...

The paper proposes an original class of models for the continuous-time price process of a financial security with nonconstant volatility. The idea is to define instantaneous volatility in terms of exponentially weighted moments of historic log-price. The instantaneous volatility is therefore...

In this paper we examine the dependence of option prices in a general jump-diffusion model on the choice of martingale pricing measure. Since the model is incomplete there are many equivalent martingale measures. Each of these measures corresponds to a choice for the market price of diffusion...

A passport option is a call option on the profits of a trading account. In this article, the robustness of passport option pricing is investigated by incorporating stochastic volatility. The key feature of a passport option is the holders' optimal strategy. It is known that in the case of...

Figlewski proposed testing the incremental contribution of the Black-Scholes model by comparing its performance against an “informationally passive” benchmark, which was defined to be an option pricing formula satisfying static no-arbitrage constraints. In this paper we extend Figlewski's...