Taking a portfolio perspective on option pricing and hedging, we show that within the standard Black-Scholes-Merton framework large portfolios of options can be hedged without risk in discrete time. The nature of the hedge portfolio in the limit of large portfolio size is substantially different...

We study both theoretically and empirically option prices on firms undergoing a cash merger offer. To estimate the merger's success probability, we use a Markov Chain Monte Carlo (MCMC) method using a state space representation of our model. Our estimated probability measure has significant...

In both complete and incomplete markets we consider the problem of fulfilling a financial obligation xc as well as possible at time T if the initial capital is not sufficient to hedge xc. This introduces a new risk into the market and our main aim is to minimize this shortfall risk by making use...