The CKLS (1992) short-term risk-free interest rate process leads to valuation model for both default free bonds and contingent claims that can only be solved numerically for the general case. Valuation equations of this nature in the past have been solved using the Crank Nicholson scheme. In this paper, we introduce a new numerical scheme – the Box method, and compare it with the traditional...
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We model the closed-end fund discount/premium in a version of Merton’s (1978) asset pricing model with incomplete information. In this economy, investors trade only assets which they “ know about” . The model generates a closed-end fund discount or premium, depending on risk-aversion parameters. The fund share price reverts to the net asset value on open-ending of the fund. The...
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We propose filtering historical simulation by GARCH processes to model the future distribution of assets and swap values. Options’ price changes are computed by full reevaluation on the changing prices of underlying assets. Our methodology takes implicitly into account assets’ correlations without restricting their values over time or computing them explicitly. VaR values for portfolios of...
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Economists’ recent outburst of interest in technical progress follows upon a widespread feeling of inadequacy of current economic theory. The author traces back the origin of this inadequacy to the historical circumstances that led an influential group of English economists in 1815 to put forward the “Law of diminishing returns” to land cultivation, jointly with the theory of rent. He shows...
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Finitely additive martingales are the counterpart of finitely additive measures over filtered probability space. We study the structure of the Yosida Hewitt decomposition in such setting and obtaing a full characterisation. Based on this result we introduce a “conditional expectation” operator for finitely additive measures which has some properties in common with ordinary conditional...
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Il Comitato di Basilea ha deciso di introdurre un nuovo schema sull’adeguatezza dei mezzi patrimoniali degli istituti bancari, in sostituzione dell’Accordo del 1988. Le proposte avanzate in uno studio pubblicato nel giugno di quest’anno (A New Capital Adequacy Framework) sono state sottoposte all’esame della comunità finanziaria internazionale. La fase di consultazione del mercato...
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An investor with quadratic utility invests amounts changing with his perceptions of risk and expected return in a market with changing risk. Optimal investment policies are derived under several hypotheses for expected returns. These policies are combined in a Bayesian framework to yield a policy that performs better than the ‘buy and hold’ policy in our tests, except in the case of the FTSE...
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We model the closed-end fund discount/premium in a version of Merton’s (1978) asset pricing model with incomplete information. In this economy, investors trade only assets which they “know about”. The model generates a closed-end fund discount or premium, depending on risk-aversion parameters. The fund share price reverts to the net asset value on open-ending of the fund. The...
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