IHS Finance Workshop. Stumpergasse 56, 1060, Vienna http://www.ihs.ac.at/fin/finsem.html

1. Nov. 30 Monday, 3 p.m. HS II, Gabriela Raaij and Burkhard Raunig (OeNB)

"A Comparison of Value at Risk Approaches and their Implications for Regulators"

2. Dec. 2 Wednesday, 4 p.m. HS II, Jamsheed Shorish (Univ. Aarhus, with Goran Peskir, Department of Theoretical Statistics, Univ. of Aarhus)

"Market Forces and Dynamic Asset Pricing"

We introduce a model of asset pricing which is driven by two characteristic market features--the law of investor demand (e.g. 'buy low, sell high') and the law of the market institution, which codifies the trading rules (explicitly or implicitly defined) that the market operates under. Motivated by Ait-Sahalia (1998) we demonstrate in a simple investor-specialist trading model that these features are sufficient to guarantee an equilibrium where the log-price of the asset follows an Ornstein-Uhlenbeck process, i.e. a stochastic process with time-varying drift. Recent empirical results indicate that such a process may provide a more natural characterization of observed asset prices. We show that a straightforward extension to the Black and Scholes (1972) options pricing model follows from this stochastic process.

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Gabriel Lee Institute for Advanced Studies Department of Finance Stumpergasse 56 A-1060 Vienna, AUSTRIA Email: gabriel.lee@ihs.ac.at Tel: +43-1-59991 141 Fax: +43-1-597 0635 Homepage: http://w3.ihs.ac.at/~lee/ =========================================================================