We characterize those vector-valued stochastic processes (with a finite index set and defined on an arbitrary stochasic base) which can become a martingale under an equivalent change of measure.This question is important in a widely studied problem which arises in the theory of finite period securities markets with one riskless bond and a finite number of risky stocks. In this setting, our characterization gives a criterion for recognizing when a securities market model allows for no arbitrage opportunities ("free lunches"). Intuitively, this can be interpreted as saying "if one cannot win betting on a process, then it must be a martingale under an equivalent measure," and provides a converse to the classical notion that "one cannot win betting on a martingale."
We test six term structure models in the Heath, Jarrow, and Morton (1992) class using Eurodollar futures and options data from 1987-1992. We study the time series of implied interest rate volatilities from these models. Using one-day lagged implied volatilities, our one-and two-parameter models simultaneously price zn average of 18.5 options each day with an average absolute error of one-and-a-half to two basis points. Although the models fit well, we document systematic strikeprice and time-to-maturity biases for all models. We also implement simple trading strategies to test whether the models identify genuine biases.
We study optimal portfolio management policies for an investor who must pay a transaction cost equal to a fixed Traction of his portfolio value each time he trades. We focus on the infinite horizon objective function of maximizing the asymptotic growth rate, so me optimal policies we derive approximate those of an investor with logarithmic utility at a distant horizon. When investment opportunities are modeled as "m" correlated geometric Brownian motion stocks and a riskless bond, we show that the optimal policy reduces to solving a single stopping time problem. When there is a single risky stock, we give a system of equations whose solution determines the optima! rule. We use numerical methods to solve for the optima! policy when there are two risky stocks. We study several specific examples and observe the general qualitative result that, even with very low transaction cost levels, the optimal policy entails very infrequent trading. Copyright 1995 Blackwell Publishers.
In this first ever longitudinal study it was found that assessment of lid position in ICU patients is the single most important observation to be carried out. A management algorithm derived from this evidence is based on daily observation and selective lid taping and shows encouraging early results.
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