An alternative approach to stochastic calculus for economic and financial models

Application of the Itô stochastic calculus to problems in economics and finance raises several modeling issues. McShane's canonical model and alternative stochastic calculus for handling these models resolves these issues in a satisfactory manner. This paper explores the application of McShane&...

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Bibliographic Details
Published in:Journal of economic dynamics & control 1995-04, Vol.19 (3), p.553-568
Main Authors: Blenman, L.P., Cantrell, R.S., Fennell, R.E., Parker, D.F., Reneke, J.A., Wang, L.F.S., Womer, N.K.
Format: Article
Language:English
Subjects:
Asset pricing models
Asset valuation
Calculus
Canonical models
Economic models
Economic theory
Financial models
Price models
Stochastic differential equations
Stochastic models
Stochastic optimization
Stochastic processes
Studies
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Summary:Application of the Itô stochastic calculus to problems in economics and finance raises several modeling issues. McShane's canonical model and alternative stochastic calculus for handling these models resolves these issues in a satisfactory manner. This paper explores the application of McShane's approach to four areas: empirical estimation and testing of stochastic models, Fischer's model of the demand for index bonds, option pricing, and optimal investment under price level uncertainty.
ISSN:0165-1889
1879-1743
DOI:10.1016/0165-1889(93)00794-5