Risk Minimizing Option Pricing in a Semi-Markov Modulated Market

We address risk minimizing option pricing in a semi-Markov modulated market where the floating interest rate depends on a finite state semi-Markov process. The growth rate and the volatility of the stock also depend on the semi-Markov process. Using the Föllmer–Schweizer decomposition we find the locally risk minimizing price for European options and the corresponding hedging strategy. We develop suitable numerical methods for computing option prices.

Risk Minimizing Option Pricing for a Class of Exotic Options in a Markov-Modulated Market

We address risk minimizing option pricing in a regime switching market where the floating interest rate depends on a finite state Markov process. The growth rate and the volatility of the stock also depend on the Markov process. Using the minimal martingale measure, we show that the locally risk minimizing prices for certain exotic options satisfy a system of Black-Scholes partial differential equations with appropriate boundary conditions. We find the corresponding hedging strategies and the residual risk. We develop suitable numerical methods to compute option prices.

The role of sustainable agriculture and renewable-resource management in reducing greenhouse-gas emissions and increasing sinks in China and India

This paper contains an analysis of the technical options in agriculture for reducing greenhouse-gas emissions and increasing sinks, arising from three distinct mechanisms: (i) increasing carbon sinks in soil organic matter and above-ground biomass; (ii) avoiding carbon emissions from farms by reducing direct and indirect energy use; and (iii) increasing renewable-energy production from biomass that either substitutes for consumption of fossil fuels or replaces inefficient burning of fuelwood or crop residues, and so avoids carbon emissions, together with use of biogas digesters and improved cookstoves. We then review best-practice sustainable agriculture and renewable-resource-management projects and initiatives in China and India, and analyse the annual net sinks being created by these projects, and the potential market value of the carbon sequestered. We conclude with a summary of the policy and institutional conditions and reforms required for adoption of best sustainability practice in the agricultural sector to achieve the desired reductions in emissions and increases in sinks. A review of 40 sustainable agriculture and renewable-resource-management projects in China and India under the three mechanisms estimated a carbon mitigation potential of 64.8 MtC yr(-1) from 5.5 Mha. The potential income for carbon mitigation is $324 million at $5 per tonne of carbon. The potential exists to increase this by orders of magnitude, and so contribute significantly to greenhouse-gas abatement. Most agricultural mitigation options also provide several ancillary benefits. However, there are many technical, financial, policy, legal and institutional barriers to overcome.