Hedging in incomplete markets with HARA utility

Article Abstract:

The analytical approach provides solution to a problem where an investor has an stochastic income which cannot be replaced by trading available securities. The problem is an extension of Merton's optimal consumption and portfolio choice problem in continuous time with HARA utility. The approach degenerates the Hamilton-Jacobi-Bellman (HJB) equation to obtain numerical approximations of the value functions and optimal policies by a sequence of smooth functions that are value functions of non-degenerate stochastic income problems.

Econometrics & Model Building, Research, Portfolio management, Hedging (Finance), Econometrics, Hamiltonian systems, Business models

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Financial market innovation and security design: an introduction

Article Abstract:

The theoretical and practical aspects of financial market innovation and security design is presented. Security design is taken in the context of incomplete financial markets, which may include traders who are asymmetrically informed. The general equilibrium literature, which stresses the role of securities, is analyzed. A unified framework covering CARA-Gaussian-based literature is used to study how financial innovation affects risk-sharing and information aggregation.

Innovations, Economics, Financial markets, Economic security

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Pricing continuously resettled contingent claims

Article Abstract:

A study was done to evaluate pricing of continuously resettled contingent claims in a stochastic economy. The study presents futures contract and modern futures option prices of a class of assets as special cases. Prices are based on a Markov diffusion setting. Derivation for these future and forward prices is examined and a preference-free function for these prices is derived.

Economic aspects, Prices and rates, Futures market, Futures markets, Financial contingencies, Claims (International law)

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