Related papers: Deterministic definition of the capital risk
Entropic dynamics, a program that aims at deriving the laws of physics from standard probabilistic and entropic rules for processing information, is developed further. We calculate the probability for an arbitrary path followed by a system…
We formulate a dynamic reinsurance problem in which the insurer seeks to control the terminal distribution of its surplus while minimizing the L2-norm of the ceded risk. Using techniques from martingale optimal transport, we show that,…
The existence of asymmetric information has always been a major concern for financial institutions. Financial intermediaries such as commercial banks need to study the quality of potential borrowers in order to make their decision on…
This paper is the continuation of "Pricing with coherent risk" and deals with further applications of coherent risk measures to problems of finance. First, we study the optimization problem. Three forms of this problem are considered.…
In this paper we create a model of particle motion on a three-dimensional lattice using discrete random walk with small steps. We rigorously construct a probability space of the particle trajectories. Unlike deterministic approach in…
The paper deals with the ruin problem of an insurance company investing its capital reserve in a risky asset with the price dynamics given by a conditional geometric Brownian motion whose parameters depend on a Markov process describing a…
We model the dynamics of asset prices and associated derivatives by consideration of the dynamics of the conditional probability density process for the value of an asset at some specified time in the future. In the case where the price…
We develop a unified valuation theory that incorporates credit risk (defaults), collateralization and funding costs, by expanding the replication approach to a generality that has not yet been studied previously and reaching valuation when…
Since Newton's time, deterministic causality has been considered a crucial prerequisite in any fundamental theory in physics. In contrast, the present work investigates stochastic dynamical models for motion in one spatial dimension, in…
We price European options in a class of models in which the volatility of the underlying risky asset depends on the short rate of interest. Our study results in an explicit pricing formula that depends on knowledge of a characteristic…
A deterministic system of coupled maps is proposed as a model for economic activity among interacting agents. The values of the maps represent the wealth of the agents. The dynamics of the system is controlled by two parameters. One…
The question of pricing and hedging a given contingent claim has a unique solution in a complete market framework. When some incompleteness is introduced, the problem becomes however more difficult. Several approaches have been adopted in…
We study capital requirements for bounded financial positions defined as the minimum amount of capital to invest in a chosen eligible asset targeting a pre-specified acceptability test. We allow for general acceptance sets and general…
A decision maker starts from a judgmental decision and moves to the closest boundary of the confidence interval. This statistical decision rule is admissible and does not perform worse than the judgmental decision with a probability equal…
In this paper, we consider an individual-based model with power law mutation probability. In this setting, we use the large population limit with a subsequent ``small mutations'' limit to derive the canonical equation of adaptive dynamics.…
It is often claimed that the fundamental laws of physics are deterministic and time-symmetric and that therefore our experience of the passage of time is an illusion. This paper will critically discuss these claims and show that they are…
We analyze the valuation partial differential equation for European contingent claims in a general framework of stochastic volatility models where the diffusion coefficients may grow faster than linearly and degenerate on the boundaries of…
Based on supermodularity ordering properties, we show that convex risk measures of credit losses are nondecreasing w.r.t. credit-credit and, in a wrong-way risk setup, credit-market, covariances of elliptically distributed latent factors.…
Being based on V. Konoplev's axiomatic approach to continuum mechanics, the paper broadens its frontiers in order to bring together continuum mechanics with classical mechanics in a new theory of mechanical systems. There are derived motion…
Dynamical systems with components whose sizes evolve according to multiplicative stochastic rules have been recently combined with entry and exit processes. We show that the assumptions usually made in modeling exits are at odds with the…