Related papers: Dam Rain and Cumulative Gain
We investigate entropy as a financial risk measure. Entropy explains the equity premium of securities and portfolios in a simpler way and, at the same time, with higher explanatory power than the beta parameter of the capital asset pricing…
Consider two insurance companies (or two branches of the same company) that receive premiums at different rates and then split the amount they pay in fixed proportions for each claim (for simplicity we assume that they are equal). We model…
This article presents a generic model for pricing financial derivatives subject to counterparty credit risk. Both unilateral and bilateral types of credit risks are considered. Our study shows that credit risk should be modeled as American…
We present a mean-field model that describes droplet growth due to condensation and collisions and droplet loss due to fallout. The model allows for an effective numerical simulation. We study how the rain initiation time depends on…
We use the theory of cooperative games for the design of fair insurance contracts. An insurance contract needs to specify the premium to be paid and a possible participation in the benefit (or surplus) of the company. It results from the…
The instability of the financial system as experienced in recent years and in previous periods is often linked to credit defaults, i.e., to the failure of obligors to make promised payments. Given the large number of credit contracts, this…
This paper studies a dynamic optimal reinsurance and dividend-payout problem for an insurance company in a finite time horizon. The goal of the company is to maximize the expected cumulative discounted dividend payouts until bankruptcy or…
In this paper the utility optimization problem for a general insurance model is studied. The reserve process of the insurance company is described by a stochastic differential equation driven by a Brownian motion and a Poisson random…
We study the upper hedging price for contingent claims in market models with strong types of arbitrage: increasing profit, strong arbitrage, and arbitrage of the first kind. The existence of arbitrage may make the price smaller than if it…
In this paper, we build on the techniques developed in Albrecher et al. (2013), to generate initial-boundary value problems for ruin probabilities of surplus-dependent premium risk processes, under a renewal case scenario, Erlang (2) claim…
Catastrophe risk is a major threat faced by individuals, companies, and entire economies. Catastrophe (CAT) bonds have emerged as a method to offset this risk and a corresponding literature has developed that attempts to provide a…
This paper presents a convenient framework for modeling default process and pricing derivative securities involving credit risk. The framework provides an integrated view of credit valuation adjustment by linking distance-to-default,…
Tandem queueing systems are widely-used stochastic models that arise from many real-life service operations systems. Motivated by the desire to understand the trade-off between the performance and complexity of policies for…
We explain the main concepts of Prospect Theory and Cumulative Prospect Theory within the framework of rational dynamic asset pricing theory. We derive option pricing formulas when asset returns are altered with a generalized Prospect…
A simple statement and accessible proof of a version of the Fundamental Theorem of Asset Pricing in discrete time is provided. Careful distinction is made between prices and cash flows in order to provide uniform treatment of all…
This paper presents an overview of information-based asset pricing. In this approach, an asset is defined by its cash-flow structure. The market is assumed to have access to "partial" information about future cash flows. Each cash flow is…
In ruin theory, the net profit condition intuitively means that the incurred random claims on average do not occur more often than premiums are gained. The breach of the net profit condition causes guaranteed ruin in few but simple cases…
An intensive research sprang up for stochastic methods in insurance during the past years. To meet all future claims rising from policies, it is requisite to quantify the outstanding loss liabilities. Loss reserving methods based on…
In this paper, we propose the discrete time Compound Beta-Binomial Risk Model with by-claims, delayed by-claims and randomized dividends. We then analyze the Gerber-Shiu function for the cases where the dividend threshold $d=0$ and $d>0$…
An automated market maker (AMM) provides a method for creating a decentralized exchange on the blockchain. For this purpose, individual investors lend liquidity to the AMM pool in exchange for a stream of fees earned from its operations as…