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The state price vector are the prices of securities which pay \$1 if and only if that state of the world occurs. This is just a question of being able to replicate the payoffs $$ \begin{pmatrix} 1 \\ 0 \\ 0 \end{pmatrix}, \begin{pmatrix} 0 \\ 1 \\ 0 \end{pmatrix}, \begin{pmatrix} 0 \\ 0 \\ 1 \end{pmatrix} $$ with payoff vectors $\vec{b} = [1,1,1]^T$ and ...


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Following references from the answer provided by @Richard, we see that the optimality condition for a continuous process in general (and therefore an OU process in particular) is covered in Section 2 concluding on page 6 of Thompson 2002, where he also represents the solution in terms of the Hamilton-Jacobi-Bellman equations. If you change the limits of the ...


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In the academic literature it is extremely widely applied in the last 20 years. I would estimate maybe 200 empirical papers, or more. For example a common finding is that higher frequency (daily) wavelet correlations have been high since 2007, attributable either to increasing financial interation or the financial crisis. It is also popular to estimate the ...



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