Related papers: Time-Consistent and Market-Consistent Evaluations

This paper introduces new valuation schemes called actuarial-consistent valuations for insurance liabilities which depend on both financial and actuarial risks, which imposes that all actuarial risks are priced via standard actuarial…

This paper develops a two-step estimation methodology, which allows us to apply catastrophe theory to stock market returns with time-varying volatility and model stock market crashes. Utilizing high frequency data, we estimate the daily…

Two markets should be considered isomorphic if they are financially indistinguishable. We define a notion of isomorphism for financial markets in both discrete and continuous time. We then seek to identify the distinct isomorphism classes,…

We investigate financial markets under model risk caused by uncertain volatilities. For this purpose we consider a financial market that features volatility uncertainty. To have a mathematical consistent framework we use the notion of…

Obtaining more accurate equity value estimates is the starting point for stock selection, value-based indexing in a noisy market, and beating benchmark indices through tactical style rotation. Unfortunately, discounted cash flow, method of…

Current approaches to fair valuation in insurance often follow a two-step approach, combining quadratic hedging with application of a risk measure on the residual liability, to obtain a cost-of-capital margin. In such approaches, the…

We are concerned with the market-consistent valuation of lifelong health insurance products, which are subject to adjustments derived from the actuarial equivalence principle and driven by (medical) inflation. Such products are…

Beta-sorted portfolios -- portfolios comprised of assets with similar covariation to selected risk factors -- are a popular tool in empirical finance to analyze models of (conditional) expected returns. Despite their widespread use, little…

We consider arbitrage free valuation of European options in Black-Scholes and Merton markets, where the general structure of the market is known, however the specific parameters are not known. In order to reflect this subjective uncertainty…

Optimal execution of a portfolio have been a challenging problem for institutional investors. Traders face the trade-off between average trading price and uncertainty, and traditional methods suffer from the curse of dimensionality. Here,…

This paper considers a simulation-based estimator for a general class of Markovian processes and explores some strong consistency properties of the estimator. The estimation problem is defined over a continuum of invariant distributions…

Financial markets are often modelled as if time were unique and continuous across assets and markets. Financial markets are however asynchronous, order flow is event-driven, and waiting times between events are often random. Many of the…

We extend the now classic structural credit modeling approach of Black and Cox to a class of "two-factor" models that unify equity securities such as options written on the stock price, and credit products like bonds and credit default…

We develop two alternate approaches to arbitrage-free, market-complete, option pricing. The first approach requires no riskless asset. We develop the general framework for this approach and illustrate it with two specific examples. The…

Recent theoretical results establish that time-consistent valuations (i.e. pricing operators) can be created by backward iteration of one-period valuations. In this paper we investigate the continuous-time limits of well-known actuarial…

The paper concerns primal and dual representations as well as time consistency of set-valued dynamic risk measures. Set-valued risk measures appear naturally when markets with transaction costs are considered and capital requirements can be…

We introduce a new class of forward performance processes that are endogenous and predictable with regards to an underlying market information set and, furthermore, are updated at discrete times. We analyze in detail a binomial model whose…

Continued interest in sustainable investing calls for an axiomatic approach to measures of risk and reward that focus not only on financial returns, but also on measures of environmental and social sustainability, i.e. environmental,…

This paper considers possible price paths of a financial security in an idealized market. Its main result is that the variation index of typical price paths is at most 2, in this sense, typical price paths are not rougher than typical paths…

This paper investigates market-consistent valuation of insurance liabilities in the context of, for instance, Solvency II and to some extent IFRS 4. We propose an explicit and consistent framework for the valuation of insurance liabilities…