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This paper continues the research started in [J. Štěpán and P. Dostál: The $\mathrm{d}X\left(t\right)=Xb\left(X\right)\mathrm{d}t+X\sigma \left(X\right)\mathrm{d}W$ equation and financial mathematics I. Kybernetika 39 (2003)]. Considering a stock price $X\left(t\right)$ born by the above semilinear SDE with $\sigma (x,t)=\tilde{\sigma }\left(x\left(t\right)\right),$ we suggest two methods how to compute the price of a general option $g\left(X\right(T\left)\right)$. The first, a more universal one, is based on a Monte Carlo procedure while the second one provides explicit formulas. We in this case need an information on the two dimensional distributions of $ℒ\left(Y\right(s),\tau (s\left)\right)$ for $s\ge 0,$ where $Y$ is the exponential...

The existence of a weak solution and the uniqueness in law are assumed for the equation, the coefficients $b$ and $\sigma$ being generally $C\left({ℝ}^{+}\right)$-progressive processes. Any weak solution $X$ is called a $(b,\sigma )$-stock price and Girsanov Theorem jointly with the DDS Theorem on time changed martingales are applied to establish the probability distribution ${\mu }_{\sigma }$ of $X$ in $C\left({ℝ}^{+}\right)$ in the special case of a diffusion volatility $\sigma (X,t)=\tilde{\sigma }\left(X\left(t\right)\right).$ A martingale option pricing method is presented.

We consider a non-consuming agent interested in the maximization of the long-run growth rate of a wealth process investing either in a money market and in one risky asset following a geometric Brownian motion or in futures following an arithmetic Brownian motion. The agent faces proportional transaction costs, and similarly as in [17] where the case of stock trading is considered, we show how the log-optimal optimal policies in the long run can be derived when using the technical tool of shadow...

A single variable controller is developed in the predictive control framework based upon minimisation of the LQ criterion with infinite output and control horizons. The infinite version of the predictive cost function results in better stability properties of the controller and still enables to incorporate constraints into the control design. The constrained controller consists of two parts: time-invariant nominal LQ controller and time-variant part given by Youla–Kučera parametrisation of all stabilising...