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In this paper, we study two optimisation settings for an insurance company, under the constraint that the terminal surplus at a deterministic and finite time $T$ follows a normal distribution with a given mean and a given variance. In both…
We develop a conservative continuous-time stochastic control framework for treatment optimization from irregularly sampled patient trajectories. The unknown patient dynamics are modeled as a controlled stochastic differential equation with…
This paper considers the problem of measuring the credit risk in portfolios of loans, bonds, and other instruments subject to possible default under multi-factor models. Due to the amount of the portfolio, the heterogeneous effect of…
This paper expands traditional stochastic volatility models by allowing for time-varying skewness without imposing it. While dynamic asymmetry may capture the likely direction of future asset returns, it comes at the risk of leading to…
We solve an infinite time-horizon bounded-variation stochastic control problem with regime switching between $N$ states. This is motivated by the problem of a government that wants to control the country's debt-to-GDP (gross domestic…
The fragility of financial systems was starkly demonstrated in early 2023 through a cascade of major bank failures in the United States, including the second, third, and fourth largest collapses in the US history. The highly interdependent…
Risk-averse investors often wish to exclude stocks from their portfolios that bear high credit risk, which is a measure of a firm's likelihood of bankruptcy. This risk is commonly estimated by constructing signals from quarterly accounting…
The interconnectedness of financial institutions affects instability and credit crises. To quantify systemic risk we introduce here the PD model, a dynamic model that combines credit risk techniques with a contagion mechanism on the network…
The importance of adequately modeling credit risk has once again been highlighted in the recent financial crisis. Defaults tend to cluster around times of economic stress due to poor macro-economic conditions, {\em but also} by directly…
Credit risk stress testing has become an important risk management device which is used both by banks internally and by regulators. Stress testing is complex because it essentially means projecting a bank's full balance sheet conditional on…
Inverse problems in physical or biological sciences often involve recovering an unknown parameter that is random. The sought-after quantity is a probability distribution of the unknown parameter, that produces data that aligns with…
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…
In this work, I address the issue of forming riskless hedge in the continuous time option pricing model with stochastic stock volatility. I show that it is essential to verify whether the replicating portfolio is self-financing, in order…
This paper introduces the notions of stability, ultimate boundedness, and positive invariance for stochastic systems in the view of risk. More specifically, those notions are defined in terms of the worst-case Conditional Value-at-Risk…
Credit risk scorecards are logistic regression models, fitted to large and complex data sets, employed by the financial industry to model the probability of default of a potential customer. In order to ensure that a scorecard remains a…
The aim of this paper is to show that in some cases risk averse multistage stochastic programming problems can be reformulated in a form of risk neutral setting. This is achieved by a change of the reference probability measure making…
The purpose of this paper is introducing rigorous methods and formulas for bilateral counterparty risk credit valuation adjustments (CVA's) on interest-rate portfolios. In doing so, we summarize the general arbitrage-free valuation…
We introduce a dynamic and stochastic interbank model with an endogenous notion of distress contagion, arising from rational worries about future defaults and ensuing losses. This entails a mark-to-market valuation adjustment for interbank…
The current research on credit risk is primarily focused on modeling default probabilities. Recovery rates are often treated as an afterthought; they are modeled independently, in many cases they are even assumed constant. This is despite…
The positivity assumption is central in the identification of a causal effect, and especially the stochastic variant is an issue many applied researchers face, yet is rarely discussed, especially in conjunction with continuous treatments or…