A common problem is to choose a “risk neutral” measure in an incomplete market in asset pricing models. We show in this paper that in some circumstances it is possible to choose a unique “equivalent local martingale measure” by completing the market with option prices. We do this by modeling the behavior of the stock price X , together with the behavior of the option prices for a relevant famil...

Because of their simplicity, risk measures are often employed in financial risk evaluations and related decisions. In fact, the risk measure ρ(X) of a random variable X is a real number customarily determining the amount of money needed to face the potential losses X might cause. At a sort of second-order level, the adequacy of ρ(X) may be investigated considering the part of the losses it does...

A martingale measure is constructed by using a mean correcting transform for the geometric Lévy processes model. It is shown that this measure is the mean correcting martingale measure if and only if, in the Lévy process, there exists a continuous Gaussian part. Although this measure cannot be equivalent to a physical probability for a pure jump Lévy process, we show that a European call option...

In this paper we introduce a model of arbitration decision making which generalizes several previous models of both conventional arbitration and final offer arbitration. We derive the equilibrium offers that risk neutral disputants would propose, and show how these offers would vary under different arbitration procedures. In particular, we show that optimal offers made under conventional arbitr...

We prove that, for locally bounded processes, absence of arbitrage opportunities of the first kind is equivalent to the existence of a dominating local martingale measure. This is related to and motivated by results from the theory of filtration enlargements.

The estimation of the market price of risk is an open question in the jump-diffusion term structure literature when a closed-form solution is not known. Furthermore, the estimation of the physical drift has a high risk of misspecification. In this paper, we obtain some results that relate the risk-neutral drift and the risk-neutral jump intensity of interest rates with the prices and yields of ...

Martingale boosting is a simple and easily understood technique with a simple and easily understood analysis. A slight variant of the approach provably achieves optimal accuracy in the presence of misclassification noise.

This paper analyses the dynamic response of a robot when subject to an external force that is applied to its Center of Mass (CoM). The Ratio of Transmission of Motion (RoToM) is proposed as a novel indicator of what part of the applied force generates motion, and what part is dissipated by the passive forces due to mechanical constraints. It depends on the configuration of the robot and on the ...

Article history: Received 29 August 2012 Received in revised form 21 May 2013 Accepted 6 August 2013 Available online 15 August 2013 We test the impact of idiosyncratic risk on stock returns for emerging markets that experience financial market liberalizations. Idiosyncratic risk is positively associated with returns prior to financial market liberalization, but liberalization diminishes this e...

An investment horizon is in practice not frequently known with certainty at the initial investment date. This paper addresses the problem of pricing and hedging a random cash‡ow received at a random date in a general stochastic environment. We ...rst argue that speci...c timing risk is induced by the presence of an uncertain time-horizon if and only if the random time under consideration is not...