I n this paper, we study a single-product periodic-review inventory system that faces random and price-dependent demand. The firm can purchase the product either from option contracts or from the spot market. Different option contracts are offered by a set of suppliers with a two-part fee structure: a unit reservation cost and a unit exercising cost. The spot market price is random and its real...

Maximum Relative Drawdown measures the largest percentage drop of the price process on a given time interval. More recently, Maximum Relative Drawdown has become more popular as an alternative measure of risk. In contrast to the Value at Risk measure, it captures the path property of the price process. In this article, we propose a partial differential equation approach to determine the theoret...

We investigate the interaction between labour and credit market imperfections for the determination of equilibrium unemployment within the framework of the "right-tomanage" approach. Our analysis highlights the critical role of labour mobility for the evaluation of the employment implications of intensified credit market competition. Without labour mobility increased bargaining power of banks w...

The implied variances of 167 firms are examined over the period 1991 through 1995. The traditional market model of returns is shown to be a good first order model for explaining the cross section of variances though firm specific variances appear to exhibit stronger covariance than the market model predicts. The existence of a positive bias over realized and forecast variances is documented. Th...

We propose a new approach to pricing of capacity in service systems with blocking, using spot and derivative market mechanisms. A second-price auction among arrivals grouped in batches gives rise to the spot market of usage charges. A reservation guaranteeing access for an arbitrary duration with a usage price below the bid can be made at any time before or during service, thus eliminating the ...

Given that the options market is now very large and significant part of the trade of financial instruments, the evaluation of pricing of these derivatives becomes very important for regulators as well as market participants. The value of an option can be estimated by using a variety of quantitative techniques based on the concept of risk neutral pricing. In the famous Black-Scholes pricing form...

If returns on two assets share common volatility components, the prices of options on the assets should be interdependent and the implied volatility spread should mean revert. We first demonstrate, using the canonical correlation method, that there is a common component among the volatilities of the returns on S&P 100 and S&P 500 indexes. We then exploit this commonality by trading on the volat...

Option replication is studied in a discrete-time framework with proportional transaction costs. The model represents an extension of the Cox-RossRubinstein binomial option-pricing model to cover the case of proportional transaction costs for one risky asset with different interest rates on bank credit and deposit. Contingent claims are supposed to be 2-dimensional random variables. Explicit for...

We examine how price impact in the underlying asset market affects the replication of a European contingent claim. We obtain a generalized Black-Scholes pricing PDE and establish the existence and uniqueness of a classical solution to this PDE. We show that unlike the case with transaction costs, replication in the presence of price impact is always cheaper than superreplication. This model imp...

We introduce a new approach to measuring riskiness in the equity market. We propose option implied and physical measures of riskiness and investigate their performance in predicting future market returns. The predictive regressions indicate a positive and significant relation between time-varying riskiness and expected market returns. The significantly positive link between aggregate riskiness ...