Three years after the seminal work of Black and Scholes on the pricing of European options, Scholes presented a paper in which the impact of taxation on the value of an option is analyzed. We restart this discussion in a simple binomial setting emphasizing the economic principles of replicating...

In this paper we empirically compare a wide range of different term structure models when it comes to the pricing and, in particular, hedging of caps and swaptions. We analyze the influence of the number of factors on the hedging and pricing results, and investigate which type of data "interest...

In this paper we analyse the mean-variance hedging approach in an incomplete market under the assumption of additional market information, which is represented by a given, finite set of observed prices of non-attainable contingent claims. Due to no-arbitrage arguments, our set of investment...

The art market has seen boom and bust during the last years and, despite the downturn, has received more attention from investors given the low interest environment following the financial crisis. However, participation has been reserved for a few investors and the hedging of exposures remains...

We propose a methodology to calibrate the local volatility function under a continuous time setting. For this purpose, we used the Markov chain approximation method built on the well-established idea of local consistency. The chain was designed to approximate jump–diffusions coupled with a...

Operational risk is increasingly being recognised as a significant area of risk and regulation, yet there exists relatively little research on it. In this paper we show that operational risk represents a fundamental risk to option hedging and investigate it by proposing a new theoretical model....