Financial bubbles and crashes have repeatedly caused economic turmoil notably but not only during the 2008 financial crisis. However, both in the popular press as well as scientific publications, the meaning of bubble is sometimes unspecified. Due to the multitude of bubble definitions, we...

Deviation of an asset price from its fundamental value, commonly referred to as a price bubble, is a well-known phenomenon in financial markets. Mathematically, a bubble arises when the deflated price process transitions from a martingale to a strict local martingale. This paper explores price...

Day traders, traders for financial institutions, and corporate executives sometimes appear to do better than chance only because the risk of large losses is hidden or overlooked. As students of casino gambling know, one way to obscure the risk of large losses is to bet more when you are losing...

This paper studies inference for the realized Laplace transform (RLT) of volatility in a fixed‐span setting using bootstrap methods. Specifically, since standard wild bootstrap procedures deliver inconsistent inference, we propose a local Gaussian (LG) bootstrap, establish its first‐order...

This research article provides criticism and arguments why the canonical framework for derivatives pricing is incomplete and why the delta-hedging approach is not appropriate. An argument is put forward, based on the efficient market hypothesis, why a proper risk-adjusted discount rate should...

We propose using a permutation test to detect discontinuities in an underlying economic model at a known cutoff point. Relative to the existing literature, we show that this test is well suited for event studies based on time‐series data. The test statistic measures the distance between the...

Modeling the native properties and pricing implications of risk preferences, and explicitly imposing portfolio theory, this study arrives at the rationalization of several risk-return anomalies and some new insights. First, study findings rationalize the phenomenon, to wit, stable realizations...

Given a pure jump Levy process $X$, spectral risk measures define a class of nonlinear expectations for a claim $C=f(XT) $ for $T0$ that are the supremum and the infimum over a set of measures of (linear) expectations of $C$. Existence of probability measures $\mathbb{Q}^U$ and $\mathbb{Q}^L$,...

Consider the sum Y=B+B^H of a Brownian motion B and an independent fractional Brownian motion B^H with Hurst parameter H ∈ (0,1). Surprisingly, even though B^H is not a semimartingale, Cheridito proved in that Y is a semimartingale if H3/4. Moreover, Y is locally equivalent to B in this case,...

We complete the investigation on the asymptotic behavior of the drift burst test statistic devised in Christensen, Oomen and Ren\`o (2020). They analysed it for an Ito semimartingale containing a Brownian component and finite variation jumps. We also account for infinite variation jumps.We show...

We extend the discrete-time construction of [Guyon, J.: The Joint S&P 500/VIX Smile Calibration Puzzle Solved, Risk, April 2020] and explain how to build a continuous-time stochastic volatility (SV) model which jointly and exactly calibrates S&P 500 (SPX) smiles, VIX futures, and VIX smiles at...

In this paper, we present a stochastic optimal control model to optimize an insurance firm problem in the case where its cash-balance process is assumed to be described by a stochastic differential equation driven by Teugels martingales. Noticing that the insurance firm is able to control its...