We propose a Wishart Affine Stochastic Correlation (WASC) model for the joint dynamics of the SDF in an international economy. We derive exchange rate dynamics and a quasi-closed-form solution for currency option pricing. This solution includes Heston's stochastic volatility model as a special...

Tests for the existence and the sign of the volatility risk premium are often based on expected option hedging errors. When the hedge is performed under the ideal conditions of continuous trading and correct model specification, the sign of the premium is the same as the sign of the mean hedging...

This paper deals with the superhedging of derivatives on incomplete markets, i.e. with portfolio strategies which generate payoffs at least as high as that of a given contingent claim. The simplest solution to this problem is in many cases a static superhedge, i.e. a buy-and-hold strategy...

This paper provides a theoretical and numerical analysis of robust hedging strategies in diffusion type models including stochastic volatility models. A robust hedging strategy avoids any losses as long as thec realised volatility stays within a given interval. We focus on the effects of...