Related papers: Time-Consistent and Market-Consistent Evaluations

We obtain an exact necessary and sufficient condition for the existence and uniqueness of equilibrium asset prices in infinite horizon, discrete-time, arbitrage free environments. Through several applications we show how the condition…

The present article explores the application of randomized control techniques in empirical asset pricing and performance evaluation. It introduces geometric random walks, a class of Markov chain Monte Carlo methods, to construct flexible…

We consider a financial market in discrete time and study pricing and hedging conditional on the information available up to an arbitrary point in time. In this conditional framework, we determine the structure of arbitrage-free prices.…

We establish existence of Predictable Forward Performance Processes (PFPPs) in complete markets, which has been previously shown only in the binomial setting. Our market model can be a discrete-time or a continuous-time model, and the…

We study time-consistency questions for processes of monetary risk measures that depend on bounded discrete-time processes describing the evolution of financial values. The time horizon can be finite or infinite. We call a process of…

Structuring a viable pension plan is a problem that arises in the study of financial contracts pricing and bears special importance these days. Deterministic pension models often rely on projections that are based on several assumptions…

We consider estimation procedures which are recursive in the sense that each successive estimator is obtained from the previous one by a simple adjustment. We propose a wide class of recursive estimation procedures for the general…

This paper studies the pricing of European-style Asian options when the price dynamics of the underlying risky asset are assumed to follow a Markov- modulated geometric Brownian motion; that is, the appreciation rate and the volatility of…

We investigate how and when to diversify capital over assets, i.e., the portfolio selection problem, from a signal processing perspective. To this end, we first construct portfolios that achieve the optimal expected growth in i.i.d.…

We consider a financial market in which two securities are traded: a stock and an index. Their prices are assumed to satisfy the Black-Scholes model. Besides assuming that the index is a tradable security, we also assume that it is…

We prove a general duality result for multi-stage portfolio optimization problems in markets with proportional transaction costs. The financial market is described by Kabanov's model of foreign exchange markets over a finite probability…

We review the nature of some well-known phenomena such as volatility smiles, convexity adjustments and parallel derivative markets. We propose that the market is incomplete and postulate the existence of intrinsic risks in every contingent…

Two-phase sampling is commonly adopted for reducing cost and improving estimation efficiency. In many two-phase studies, the outcome and some cheap covariates are observed for a large sample in Phase I, and expensive covariates are obtained…

We consider a financial market model driven by an R^n-valued Gaussian process with stationary increments which is different from Brownian motion. This driving noise process consists of $n$ independent components, and each component has…

Tempered stable distributions are frequently used in financial applications (e.g., for option pricing) in which the tails of stable distributions would be too heavy. Given the non-explicit form of the probability density function,…

We combine forward investment performance processes and ambiguity averse portfolio selection. We introduce the notion of robust forward criteria which addresses the issues of ambiguity in model specification and in preferences and…

This paper investigates the equilibrium portfolio selection for smooth ambiguity preferences in a continuous-time market. The investor is uncertain about the risky asset's drift term and updates the subjective belief according to the…

We explore credit risk pricing by modeling equity as a call option and debt as the difference between the firm's asset value and a put option, following the structural framework of the Merton model. Our approach proceeds in two stages:…

During the last decade Levy processes with jumps have received increasing popularity for modelling market behaviour for both derviative pricing and risk management purposes. Chan et al. (2009) introduced the use of empirical likelihood…

We attempt to explain stock market dynamics in terms of the interaction among three variables: market price, investor opinion and information flow. We propose a framework for such interaction and apply it to build a model of stock market…