There is strong empirical evidence that the pricing kernel is Ushaped,which provides a way to explain the substantial coskewnesspremium. Existing studies typically use a polynomial approximationof the pricing kernel. Problematically, these polynomials have, inmost cases, increasing parts by...

To shed light on the empirical relevance of the limits to arbitrage, we study hedge funds’ trading patterns in the stock market during liquidity crises. Consistent with arbitrageurs’ limited ability to provide liquidity, we find that at the time of liquidity crises hedge funds reduce their...

In this paper we give a financial justification, based on non arbitrage conditions,of the (H) hypothesis in default time modelling. We also show how the (H) hypothesis isaffected by an equivalent change of probability measure.[...]

In the context of a general continuous financial market model, we study whether the additional information associated with an honest time τ gives rise to arbitrage profits. By relying on the theory of progressive enlargement of filtrations, we explicitly show that no kind of arbitrage profit...

This paper studies modelling and existence issues for market models of option prices in a continuous-time framework with one stock, one bond and a family of European call options for one fixed maturity and all strikes. After arguing that (classical) implied volatilities are ill-suited for...