There are two major streams of literature on the modeling of financial bubbles: the strict local martingale framework … can exhibit strict local martingale behavior, we clarify the connection between these previously disconnected approaches …. While the original JLS model is never a strict local martingale, there are relaxations which can be strict local martingales …

The problem studied is the pricing of options on the CBOE Skew index. The option pricing theory developed seeks to … this hedge. The theory is applied to pricing VIX options using the market for SPY options and pricing options on JPM using …

martingale, as required by the theory, but a strict local martingale with consequences on the validity of the risk … filtration set so that an absolutely continuous strict local martingale, once projected on it, becomes continuous with jumps …

Taking a portfolio perspective on option pricing and hedging, we show that within the standard Black …) hedging the total risk of each option separately, the correct hedge portfolio in discrete time eliminates linear (delta) as … indefinitely. This ties the literature on option pricing and hedging closer together with the APT literature in its focus on …