How should price models be chosen for real option valuation and how should real option cash flows be hedged in the presence of model error? We consider a specific type of model error in the context of the natural gas storage real option: The assumed number of factors in a multifactor futures price model differs from the true number of factors. In terms of valuation, model error does not seem to...

We consider the problem of valuation of certain Asian options in the geometric jump-diffusion models with continuously dividend-paying assets. With the sources of diffusion risks and two primitive tradeable assets, the market in this model is, in general, incomplete, and so, there are more than one equivalent martingale measures and no-arbitrage prices. For this jump-diffusion model, we adopt t...

Developments in valuation theory, especially the study of algebraically closed valued fields, have used the model theory of C-minimal structures in different places, e.g., the work of Hrushovski-Kazdhan in [HK06] and Haskell-Hrushovski-Macpherson in [HHM13]. We intend with this text both to promulgate a basic comprehension of Cminimality for mathematicians interested in valuation theory (equipp...

Compact specification of relationships between variables in a graphical model requires reducing the number of parameters in the valuation (probability potential, belief function, or utility) expressing that relationship. Finding structure (such as logical relationships) among the possible outcomes suggests reduced parameter representations of valuations. The TS-set notation, introduced here, he...

Summery: We show that a family of smooth stable curves defined on the interior of a log regular scheme is extended to a log smooth scheme over the whole log regular scheme, if it is so at each generic point of the boundary, under a very mild assumption. We also include a proof of the fact that a log smooth scheme over a discrete valuation ring has potentially a semi-stable model. As a consequen...

We investigate the use of a warrant-pricing approach to incorporate employee stock options (ESOs) into equity valuation and to account for the dilutive effect of ESOs in the valuation of option grants for financial reporting purposes. Our valuation approach accounts for the jointly determined nature of ESO and shareholder values. The empirical results show that our stock price estimate exhibits...

This paper considers a risk-based approach for indifference valuation of contingent claims in the context of a continuous-time stochastic volatility model. Since the market in the model is incomplete there is more than one arbitrage-free price of an option. We adopt a risk-based approach to select a seller’s and a buyer’s indifference price for the option contract. A convex risk measure is used...

There is accumulating neural evidence to support the existence of two distinct systems for guiding action selection, a deliberative "model-based" and a reflexive "model-free" system. However, little is known about how the brain determines which of these systems controls behavior at one moment in time. We provide evidence for an arbitration mechanism that allocates the degree of control over beh...