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An alternative approach to stochastic calculus for economic and financial models. (English) Zbl 0900.90032

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.

MSC:

91B28 Finance etc. (MSC2000)
91B24 Microeconomic theory (price theory and economic markets)
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