Holding gains implied by alternative stochastic processes

Abstract This article applies the methods of continuous time stochastic calculus to the problem of estimating realizable holding gains. Unlike earlier studies, which are based exclusively on numerical methods, the stochastic calculus approach is characterized by a set of parameters which specify the distributional properties of the realizable holding gain. This provides information on the reliability or otherwise of a given estimating technique. It also overcomes a major limitation of numerically based methods, namely, their inability to provide information on the magnitude of possible errors.

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