For simple problems (only) in stochastic storage, analytic solutions are available,and although simulation is available for more difficult problems, in many casesthis is impractically slow. A new system of partial dierential equations (PDEs),derived via techniques used to value options in nance,...

The transformed-data maximum likelihood estimation (MLE) method for struc- tural credit risk models developed by Duan (1994) is extended to account for the fact that observed equity prices may have been contaminated by trading noises. With the presence of trading noises, the likelihood function...

In the present paper we consider a model for stock prices which is a generalization of the model behind the Black-Scholes formula for pricing European call options. We model the log-price as a deterministic linear trend plus a diffusion process with drift zero and with a diffusion coefficient...

The transformed-data maximum likelihood estimation (MLE) method for struc- tural credit risk models developed by Duan (1994) is extended to account for the fact that observed equity prices may have been contaminated by trading noises. With the presence of trading noises, the likelihood function...

This paper shows how one can compute option prices from a Bayesian inference viewpoint, using an econometric model for the dynamics of the return and of the volatility of the underlying asset. The proposed evaluation of an option is the predictive expectation of its payoff function. The...

Simulation has proved to be a valuable tool for estimating security prices for which simple closed form solutions do not exist. In this paper we present two direct methods, a pathwise method and a likelihood ratio method, for estimating derivatives of security prices using simulation. With the...

The transformed-data maximum likelihood estimation (MLE) method for struc- tural credit risk models developed by Duan (1994) is extended to account for the fact that observed equity prices may have been contaminated by trading noises. With the presence of trading noises, the likelihood function...