In this paper we develop a novel valuation model and methodology to value a pharmaceutical R&D project based on real options approach. The real options approach enables the possibility of optimally abandon the project before completion whenever the investment cost turns out to be larger than the...

We develop a Gaussian stochastic string model that provides closed-form expressions for the prices of caps and swaptions that, under certain conditions, reduce to Black (1976) formulas. We also propose a stochastic string LIBOR market model that generalizes the models of Brace et al. (1997) and...

We extend and generalize some results on bounding security prices under several stochastic volatility models that provide closed-form expressions for option prices. In detail, we have computed analytical expressions for benchmark and standard good-deal bounds. For all the models, our findings...

We apply the Malliavin calculus to the stochastic string framework and obtain a Clark-Ocone-like formula. This result allows us to rewrite the hedging portfolio explicitly in terms of the Malliavin derivative of the discounted payoff. We illustrate this new result with two applications. Firstly,...

This paper develops a new macro-financial continuous-time model for the term structure of interest rates assuming that the instantaneous interest rate converges to a certain long-term mean level that depends on the business cycle and that the interest rate volatility depends on the interest rate...