Empirical Performance of Models for Barrier Option Valuation

In this paper the empirical performance of ve di erent models for barrier op- tion valuation is investigated: the Black-Scholes model, the constant elasticity of variance model, the Heston stochastic volatility model, the Merton jump-di usion model, and the in nite activity Variance Gamma model. We use time-series data from the USD/EUR exchange rate market: standard put and call (plain vanilla) option prices and a unique set of observed market values of barrier options. The models are calibrated to plain vanilla option prices, and prediction errors at dif- ferent horizons for plain vanilla and barrier option values are investigated. For plain vanilla options, the Heston and Merton models have similar and superior performance for prediction horizons up to one week. For barrier options, the continuous-path models (Black-Scholes, constant elasticity of variance, and Hes- ton) do almost equally well, while both models with jumps (Merton and Variance Gamma) perform markedly worse

Dynamic portfolio optimization with transaction costs and state-dependent drift

The problem of dynamic portfolio choice with transaction costs is often addressed by constructing a Markov Chain approximation of the continuous time price processes. Using this approximation, we present an efficient numerical method to determine optimal portfolio strategies under time- and state-dependent drift and proportional transaction costs. This scenario arises when investors have behavioral biases or the actual drift is unknown and needs to be estimated. Our numerical method solves dynamic optimal portfolio problems with an exponential utility function for time-horizons of up to 40 years. It is applied to measure the value of information and the loss from transaction costs using the indifference principle

Municipality screening of citizens with suspicion of chronic obstructive pulmonary disease

Up to 436,000 adult Danes suffer from chronic obstructive pulmonary disease (COPD), with only one third diagnosed at this time. The Danish National Board of Health recommends early detection of COPD, focusing on smokers/ex-smokers over 35 years of age with at least one lung symptom. A governmental prevention committee has suggested that the municipalities, in addition to general practice, should be a potential arena responsible for early detection of COPD. We undertook a pilot study to investigate the feasibility and effectiveness of early detection of COPD in municipalities following the recommendations of the Danish National Board of Health