The paper proposes the use of the growth optimal portfolio for pricing end hedging in incomplete markets when there are unobserved factors that have to be filtered. The proposed filtering framework is applicable also in ...

This paper considers the measurement of the equity risk premium in financial markets from a new perspective that picks up on a suggestion from Merton (1980) to use implied volatility of options on a market portfolio as ...

We consider a parametrization of the Heath-Jarrow-Morton (HJM) family of term structure of interest rate models that allows a finite-dimensional Markovian representation of the stochastic dynamics. This parametrization ...