Related papers: Time-Consistent and Market-Consistent Evaluations
We introduce the concept of forward rank-dependent performance processes, extending the original notion to forward criteria that incorporate probability distortions. A fundamental challenge is how to reconcile the time-consistent nature of…
In setting up a stochastic description of the time evolution of a financial index, the challenge consists in devising a model compatible with all stylized facts emerging from the analysis of financial time series and providing a reliable…
We study portfolio selection in a complete continuous-time market where the preference is dictated by the rank-dependent utility. As such a model is inherently time inconsistent due to the underlying probability weighting, we study the…
We develop estimation and inference methods for a stylized macroeconomic model with potentially multiple behavioural equilibria, where agents form expectations using a constant-gain learning rule. We first show geometric ergodicity of the…
This paper investigates the pricing of European-style lookback options when the price dynamics of the underlying risky asset are assumed to follow a Markov-modulated Geo-metric Brownian motion; that is, the appreciation rate and the…
Although machine learning approaches have been widely used in the field of finance, to very successful degrees, these approaches remain bespoke to specific investigations and opaque in terms of explainability, comparability, and…
We develop a model for credit rating migration that accounts for the impact of economic state fluctuations on default probabilities. The joint process for the economic state and the rating is modelled as a time-homogeneous Markov chain.…
We discuss a weighted estimation of correlation and covariance matrices from historical financial data. To this end, we introduce a weighting scheme that accounts for similarity of previous market conditions to the present one. The…
We consider a financial market where the asset price follows a fractional Brownian motion. We introduce a family of investment strategies, and quantify profit possibilities for both persistent and antipersistant markets.
The paper has 2 main goals: 1. We propose a variant of the CAPM based on coherent risk. 2. In addition to the real-world measure and the risk-neutral measure, we propose the third one: the extreme measure. The introduction of this measure…
Financial markets typically exhibit dynamically complex properties as they undergo continuous interactions with economic and environmental factors. The Efficient Market Hypothesis indicates a rich difference in the structural complexity of…
Environmental, Social, and Governance (ESG) finance is a cornerstone of modern finance and investment, as it changes the classical return-risk view of investment by incorporating an additional dimension of investment performance: the ESG…
In most cases, insurance contracts are linked to the financial markets, such as through interest rates or equity-linked insurance products. To motivate an evaluation rule in these hybrid markets, Artzner et al. (2022) introduced the notion…
We study discrete-time predictable forward processes when trading times do not coincide with performance evaluation times in a binomial tree model for the financial market. The key step in the construction of these processes is to solve a…
This paper studies the topic of cost-efficiency in incomplete markets. A payoff is called cost-efficient if it achieves a given probability distribution at some given investment horizon with a minimum initial budget. Extensive literature…
Much research in systemic risk is focused on default contagion. While this demands an understanding of valuation, fewer articles specifically deal with the existence, the uniqueness, and the computation of equilibrium prices in structural…
We consider a class of generalized capital asset pricing models in continuous time with a finite number of agents and tradable securities. The securities may not be sufficient to span all sources of uncertainty. If the agents have…
We extend the classical Cox-Ross-Rubinstein binomial model in two ways. We first develop a binomial model with time-dependent parameters that equate all moments of the pricing tree increments with the corresponding moments of the increments…
This paper introduces the concept of a global financial market for environmental indices, addressing sustainability concerns and aiming to attract institutional investors. Risk mitigation measures are implemented to manage inherent risks…
In a discrete time stochastic model of a pension investment funds market Gajek and Kaluszka(2000a) have provided a definition of the average rate of return which satisfies a set of economic correctnes postulates. In this paper the average…