Related papers: Security Pricing with Information-Sensitive Discou…
We present a generative approach to price options and extract risk-neutral densities from the market. Specifically, we model the underlying log-returns on the time-to-maturity continuum as a generative model from standard normal. Neural…
In this paper, we introduce a model that adds a non-linearity to discounting: the discounting factor may depend on the notional (i.e., discounted values are no longer linear in the notional). In the first part of the paper, we provide a…
This article proposes a method for measuring the latent risks involved in the recovery process of non performing loans in financial institutions and business firms that deal with collection and recovery processes. To that end, we apply the…
This paper studies the pricing of contingent claims of American style, using indifference pricing by fully dynamic convex risk measures. We provide a general definition of risk-indifference prices for buyers and sellers in continuous time,…
This study deals with the pricing and hedging of single-tranche collateralized debt obligations (STCDOs). We specify an affine two-factor model in which a catastrophic risk component is incorporated. Apart from being analytically tractable,…
Existing approaches to asset-pricing under model-uncertainty adapt classical utility-maximization frameworks and seek theoretical comprehensiveness. We move toward practice by considering binary model-risks and by emphasizing 'constraints'…
We study the hedging and valuation of European and American claims on a non-traded asset $Y$, when a traded stock $S$ is available for hedging, with $S$ and $Y$ following correlated geometric Brownian motions. This is an incomplete market,…
This paper studies the pool strategy for price-makers under imperfect information. In this occasion, market participants cannot obtain essential transmission parameters of the power system. Thus, price-makers should estimate the market…
A derivative is a financial security whose value is a function of underlying traded assets and market outcomes. Pricing a financial derivative involves setting up a market model, finding a martingale (``fair game") probability measure for…
We apply the concepts of utility based pricing and hedging of derivatives in stochastic volatility markets and introduce a new class of "reciprocal affine" models for which the indifference price and optimal hedge portfolio for pure…
We consider in this paper some structured financial products, known as reverse convertible notes, that resulted in substantial losses to certain buyers of these notes in recent years. We shall focus on specific reverse convertible notes…
We propose three different data-driven approaches for pricing European-style call options using supervised machine-learning algorithms. These approaches yield models that give a range of fair prices instead of a single price point. The…
In the present paper we fill an essential gap in the Convertible Bonds pricing world by deriving a Binary Tree based model for valuation subject to credit risk. This model belongs to the framework known as Equity to Credit Risk. We show…
In this paper we use a hybrid Monte Carlo-Optimal quantization method to approximate the conditional survival probabilities of a firm, given a structural model for its credit defaul, under partial information. We consider the case when the…
We present a novel synthesis of Fisher information and asset pricing theory that yields a practical method for reconstructing the probability density implicit in security prices. The Fisher information approach to these inverse problems…
In the framework of Embedded Value new standards, namely the MCEV norms, the latest principles published in June 2008 address the issue of market and underwriting risks measurement by using stochastic models of projection and valorization.…
With the reform of interest rate benchmarks, interbank offered rates (IBORs) like LIBOR have been replaced by risk-free rates (RFRs), such as the Secured Overnight Financing Rate (SOFR) in the U.S. and the Euro Short-Term Rate (\euro STR)…
Starting from the Avellaneda-Stoikov framework, we consider a market maker who wants to optimally set bid/ask quotes over a finite time horizon, to maximize her expected utility. The intensities of the orders she receives depend not only on…
Prediction markets are often described as mechanisms that ``aggregate information'' into prices, yet the mapping from dispersed private information to observed market histories is typically noisy, endogenous, and shaped by heterogeneous and…
We focus on model risk and risk sensitivity when addressing the insurability of cyber risk. The standard statistical approaches to assessment of insurability and potential mispricing are enhanced in several aspects involving consideration…