In this paper, we examine an exchange economy with a financial market composed of three assets: a share of a stock, an European call option written on the stock, and a riskless bond. The financial market is assumed to be incomplete and the option is not a redundant asset. In such a case the...

We provide results on the existence and uniqueness of equilibrium in dynamically incomplete financial markets in discrete time. Our framework allows for heterogeneous agents, unspanned random endowments and convex trading constraints. In the special case where all agents have preferences of the...

We propose an approach to the valuation of payoffs in general semimartingale models of financial markets where prices are nonnegative. Each asset price can hit 0; we only exclude that this ever happens simultaneously for all assets. We start from two simple, economically motivated axioms, namely...

In this paper we propose a novel flexible framework based on time changed Lévy process for the joint evolution of stock log-returns and their volatility with the aim of analysing which risk factors and which distribution features provide a robust calibration, repricing and hedging performance....

We propose a general discrete-time framework for deriving equilibrium prices of financial securities. It allows for heterogeneous agents, unspanned random endowments and convex trading constraints. We give a dual characterization of equilibria and provide general results on their existence and...

This paper briefly identifies and corrects an error in Duffie and Singleton (1999). The error to omit a variable casts doubt on the arguments of Duffie and Singleton to constitute Heath-Jarrow-Morton (1992) type term structures on defaultable bonds. The error reveals inconsistency through their...

The use of fundamentalist traders in the stock market models is problematic since fundamental values in the real world are unknown. Yet, in the literature to date, fundamentalists are often required to replicate key stylized facts. The authors present an agent-based model of the stock market in...

The two main issues for managing wrong way risk (WWR) for the credit valuation adjustment (CVA, i.e. WW-CVA) are calibration and hedging. Hence we start from a novel model-free worst-case approach based on static hedging of counterparty exposure with liquid options. We say "start from" because...

In this paper, we derive optimal hedging strategies for options in electricity futures markets. Optimality is measured in terms of minimal variance and the associated minimal variance hedging portfolios are obtained by a stochastic maximum principle. Our explicit results are particularly useful...

This paper attempts to measure the risk and return relationship in Dhaka Stock Exchange (DSE) of Bangladesh. Applying Single Index Model, the study reports statistically significant positive relationship between risk and return both at the individual security level and at the portfolio level....