Related papers: Credit Risk, Market Sentiment and Randomly-Timed D…
Evaluating the financial performance of manufacturing firms requires consideration of both the time value of money and the relative importance of multiple decision criteria. Conventional approaches relying solely on deterministic…
The author seeks to develop a model to alter the bid-offer spread, currently quoted by market makers, that varies with the market and trading conditions. The dynamic nature of financial markets and trading, as with the rest of social…
Travel time derivatives are financial instruments that derive their value from road travel times, serving as an underlying asset that cannot be directly traded. Within the transportation domain, these derivatives are proposed as a more…
A corporate bond trader in a typical sell side institution such as a bank provides liquidity to the market participants by buying/selling securities and maintaining an inventory. Upon receiving a request for a buy/sell price quote (RFQ),…
The existence of the pricing kernel is shown to imply the existence of an ambient information process that generates market filtration. This information process consists of a signal component concerning the value of the random variable X…
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…
Interpretability analysis methods for artificial intelligence models, such as LIME and SHAP, are widely used, though they primarily serve as post-model for analyzing model outputs. While it is commonly believed that the transparency and…
We model investor heterogeneity using different required returns on an investment and evaluate the impact on the valuation of an investment. By assuming no disagreement on the cash flows, we emphasize how risk preferences in particular, but…
The estimation of probabilities of default (PDs) for low default portfolios by means of upper confidence bounds is a well established procedure in many financial institutions. However, there are often discussions within the institutions or…
We consider a portfolio optimization problem in a defaultable market with finitely-many economical regimes, where the investor can dynamically allocate her wealth among a defaultable bond, a stock, and a money market account. The market…
Credit Valuation Adjustment captures the difference in the value of derivative contracts when the counterparty default probability is taken into account. However, in the context of a network of contracts, the default probability of a direct…
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…
We analyze 18 quadrillion models for the joint pricing of corporate bond and stock returns. Strikingly, we find that equity and nontradable factors alone suffice to explain corporate bond risk premia once their Treasury term structure risk…
We explore the striking mathematical connections that exist between market scoring rules, cost function based prediction markets, and no-regret learning. We show that any cost function based prediction market can be interpreted as an…
The paper studies derivative asset analysis in structural credit risk models where the asset value of the firm is not fully observable. It is shown that in order to compute the price dynamics of traded securities one needs to solve a…
We apply the potential force estimation method to artificial time series of market price produced by a deterministic dealer model. We find that dealers' feedback of linear prediction of market price based on the latest mean price changes…
Model risk measures consequences of choosing a model in a class of possible alternatives. We find analytical and simulated bounds for payoff functions on classes of plausible alternatives of a given discrete model. We measure the impact of…
In competitive industries, a reliable yield forecasting is a prime factor to accurately determine the production costs and therefore ensure profitability. Indeed, quantifying the risks long before the effective manufacturing process enables…
The aim of this paper is to quantify and manage systemic risk caused by default contagion in the interbank market. We model the market as a random directed network, where the vertices represent financial institutions and the weighted edges…
When making decisions under risk, people often exhibit behaviors that classical economic theories cannot explain. Newer models that attempt to account for these irrational behaviors often lack neuroscience bases and require the introduction…