In arbitrage-free but incomplete markets, the equivalent martingale measure Q for pricing traded assets is not uniquely determined. A possible approach when it comes to choosing a particular pricing measure is to consider the one that is 'closest'to the physical probability measure P, where...

We propose a modification of the option pricing framework derived by Borland which removes the possibilities for arbitrage within this framework. It turns out that such arbitrage possibilities arise due to an incorrect derivation of the martingale transformation in the non-Gaussian option models...

It is a well known fact that local scale invariance plays a fundamental role in the theory of derivative pricing. Specific applications of this principle have been used quite often under the name of `change of numeraire', but in recent work it was shown that when invoked as a fundamental first...

We develop a new class of utility functions, SAHARA utility, with the distinguishing feature that it allows absolute risk aversion to be non-monotone and implements the assumption that agents may become less risk averse for very low values of wealth. The class contains the well-known exponential...

We analyze the regularity of the optimal exercise boundary for the American Put option when the underlying asset pays a discrete dividend at a known time $t_d$ during the lifetime of the option. The ex-dividend asset price process is assumed to follow Black-Scholes dynamics and the dividend...