No arbitrage without semimartingales

We show that with suitable restrictions on allowable trading strategies, one has no arbitrage in settings where the traditional theory would admit arbitrage possibilities. In particular, price processes that are not semimartingales are possible in our setting, for example, fractional Brownian motion.Comment: Published in at http://dx.doi.org/10.1214/08-AAP554 the Annals of Applied Probability (http://www.imstat.org/aap/) by the Institute of Mathematical Statistics (http://www.imstat.org

A Common Market Measure for Libor and Pricing Caps, Floors and Swaps in a Field Theory of Forward Interest Rates

The main result of this paper that a martingale evolution can be chosen for Libor such that all the Libor interest rates have a common market measure; the drift is fixed such that each Libor has the martingale property. Libor is described using a field theory model, and a common measure is seen to be emerge naturally for such models. To elaborate how the martingale for the Libor belongs to the general class of numeraire for the forward interest rates, two other numeraire's are considered, namely the money market measure that makes the evolution of the zero coupon bonds a martingale, and the forward measure for which the forward bond price is a martingale. The price of an interest rate cap is computed for all three numeraires, and is shown to be numeraire invariant. Put-call parity is discussed in some detail and shown to emerge due to some non-trivial properties of the numeraires. Some properties of swaps, and their relation to caps and floors, are briefly discussed.Comment: 28 pages, 4 figure

Pricing Options On Risky Assets In A Stochastic Interest Rate Economy 1

Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/73150/1/j.1467-9965.1992.tb00030.x.pd

Pricing foreign currency options under stochastic interest rates

In this paper, we build a general framework to price contingent claims on foreign currencies using the Heath et al. (1987) model of the term structure. Closed form solutions are obtained for European options on currencies and currency futures assuming that the volatility functions determining the term structure are deterministic. As such, this paper provides an example of a bond price process (for both the domestic and foreign economies) consistent with Grabbe's (1983) formulation of the same problem.Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/29151/1/0000193.pd

The Mersey Estuary : sediment geochemistry

This report describes a study of the geochemistry of the Mersey estuary carried out between April 2000 and December 2002. The study was the first in a new programme of surveys of the geochemistry of major British estuaries aimed at enhancing our knowledge and understanding of the distribution of contaminants in estuarine sediments. The report first summarises the physical setting, historical development, geology, hydrography and bathymetry of the Mersey estuary and its catchment. Details of the sampling and analytical programmes are then given followed by a discussion of the sedimentology and geochemistry. The chemistry of the water column and suspended particulate matter have not been studied, the chief concern being with the geochemistry of the surface and near-surface sediments of the Mersey estuary and an examination of their likely sources and present state of contamination

A unified approach to pricing and risk management of equity and credit risk

We propose a unified framework for equity and credit risk modeling, where the default time is a doubly stochastic random time with intensity driven by an underlying affine factor process. This approach allows for flexible interactions between the defaultable stock price, its stochastic volatility and the default intensity, while maintaining full analytical tractability. We characterize all risk-neutral measures which preserve the affine structure of the model and show that risk management as well as pricing problems can be dealt with efficiently by shifting to suitable survival measures. As an example, we consider a jump- to-default extension of the Heston stochastic volatility model