Discretely sampled variance and volatility swaps trade actively in OTC markets. To price these swaps, the continuously sampled approximation is often used to simplify the computations. The purpose of this paper is to study the conditions under which this approximation is valid. Our first set of...

Fama (1970) defined an efficient market as one in which prices always “fully reflect” available information. This paper formalizes this definition and provides various characterizations relating to equilibrium models, profitable trading strategies, and equivalent martingale measures. These...

Aggregation is an often used tool in finance and macroeconomics, whereby economic equilibrium in a heterogeneous trader economy is characterized by means of the first order optimality conditions of a representative agent. In this paper we study the conditions under which a representative agent...

Given a market with a price process S populated by heterogeneous traders with differential information, beliefs, and trading constraints, let the smallest information set containing all of the traders' information be denoted F. This market is defined to be informationally efficient (Fama [2])...