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Abstract In this article, we solve the variance-optimal hedging problem in stochastic volatility (SV) models based on time-changed Lévy processes, that is, in the setup of Carr et al. (2003). The solution is derived using results for general affine models in the companion article [Kallsen and...
Abstract This paper considers an optimal portfolio selection problem under Markowitz's mean-variance portfolio selection problem in a multi-period regime-switching model. We assume that there are n + 1 securities in the market. Given an economic state which is modelled by a finite state Markov...
Abstract Analytic solutions are found for prices of variance and volatility swaps under a new time-dependent stochastic model for the dynamics of variance. The main features of the new stochastic differential equation are (1) an empirically validated cν3/2 diffusion term and (2) a free function...
Abstract We are interested in pricing rainfall options written on precipitation at specific locations. We assume the existence of a tradeable financial instrument in the market whose price process is affected by the quantity of rainfall. We then construct a suitable ‘Markovian gamma’ model for...
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