This paper derives a generalized multiple-factor asset pricing model using only the assumption of no arbitrage. This generalization differs from the standard multiple-factor pricing models in two ways. First, similar to standard models, a traded asset's expected return is linear in a finite...

This paper provides an alternative approach to Duffie and Lando (2001) for obtaining a reduced form credit risk model from a structural model. Duffie and Lando obtain a reduced form model by constructing an economy where the market sees the manager's information set plus noise. The noise makes...

This paper provides a mathematical analysis of how high frequency traders profi t from their speed with respect to the limit order book. We show that their pro ts can be decomposed into two components. The rest is due to their ability to execute market orders at limit order prices and without...

A constrained informationally efficient market is defined to be one whose price process arises as the outcome of some equilibrium where agents face restrictions on trade. This paper investigates the case of short sale constraints, a setting which despite its simplicity, generates new insights....

This paper uses a reduced form credit risk model to determine fair lending rates for micro-finance loans. A fair lending rate is defined to be that rate which makes the loan have a net present value of zero to the lender, after the inclusion of the lender's costs of issuing and monitoring the loan

This paper uses a bottom-up, reduced form credit risk model with hazard rate estimated default probabilities to compute various collateralized loan obligation (CLO) tranches’ loss probabilities and capital factors. It is shown that with respect to the loss probabilities, credit rated CLO...

This paper studies the impact of filtration reduction on incomplete markets. We provide a new theorem and an economic based approach for studying information reduction. We use filtration reduction to identify a unique equivalent martingale measure for pricing derivatives in an arbitrage-free,...

In this paper we study an incomplete Brownian motion market and use filtration reduction to obtain a complete market, and hence a unique pricing measure. We then uplift the obtained measure to the original market and study valuation and hedging via the uplifted measure. We show how a general...

The importance of market efficiency to derivative pricing is not well understood. The purpose of this paper is to explain this connection. The connection is established using the third fundamental theorem of asset pricing. The third fundamental theorem of asset pricing characterizes the...