Related papers: Capital requirements with defaultable securities
Solvency II Directive 2009/138/EC requires an insurance and reinsurance undertakings assessment of a Solvency Capital Requirement by means of the so-called "Standard Formula" or by means of partial or full internal models. Focusing on the…
We study a variant of Set Cover where each element of the universe has some demand that determines how many times the element needs to be covered. Moreover, we examine two generalizations of this problem when a set can be included multiple…
Testing by betting has been a cornerstone of the game-theoretic statistics literature. One bets against the null hypothesis, and the accumulated wealth $W_t$ quantifies the evidence against the null hypothesis after $t$ rounds, and the null…
In this work, a pricing model for a defaultable corporate bond with credit rating migration risk is established. The model turns out to be a free boundary problem with two free boundaries. The latter are the level sets of the solution but…
In this article we consider the parameter risk in the context of internal modelling of the reserve risk under Solvency II. We discuss two opposed perspectives on parameter uncertainty and point out that standard methods of classical…
This paper studies the dividend and capital injection problem under a diffusion risk model with general discount functions. A proportional cost is imposed when injecting capitals. For exponential discounting as time-consistent benchmark, we…
In this paper, we consider three problems related to survival, growth, and goal reaching maximization of an investment portfolio with proportional net cash flow. We solve the problems in a market constrained due to borrowing prohibition. To…
We study the optimal financing and dividend distribution problem with restricted dividend rates in a diffusion type surplus model where the drift and volatility coefficients are general functions of the level of surplus and the external…
Science and technology have a growing need for effective mechanisms that ensure reliable, controlled performance from black-box machine learning algorithms. These performance guarantees should ideally hold conditionally on the input-that is…
In this note, we develop stock option price approximations for a model which takes both the risk o default and the stochastic volatility into account. We also let the intensity of defaults be influenced by the volatility. We show that it…
We show that under plausible levels of background risk, no theory of choice under risk -- such as expected utility theory, prospect theory, or rank dependent utility -- can simultaneously satisfy the following three economic postulates: (i)…
We provide an economic interpretation of the practice consisting in incorporating risk measures as constraints in a classic expected return maximization problem. For what we call the infimum of expectations class of risk measures, we show…
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…
Most decision theories, including expected utility theory, rank dependent utility theory and cumulative prospect theory, assume that investors are only interested in the distribution of returns and not in the states of the economy in which…
In this paper we propose a new nonparametric approach to interacting failing systems (FS), that is systems whose probability of failure is not negligible in a fixed time horizon, a typical example being firms and financial bonds. The main…
The aim of this paper is to study the optimal investment problem by using coherent acceptability indices (CAIs) as a tool to measure the portfolio performance. We call this problem the acceptability maximization. First, we study the…
This paper builds a finite-horizon model to study the role of physical collateral in a model of strategic defaults, when the borrower can develop reputation for honesty. Asset ownership increases attractiveness of the reputational channel:…
We consider a group consisting of N business units. We suppose there are regulatory constraints for each unit, more precisely, the net worth of each business unit is required to belong to a set of acceptable risks, assumed to be a convex…
Necessary optimality conditions in the form of the maximum principle for control problems with infinite time horizon are considered. Both finite and infinite values of objective functional are allowed since the concept of overtaking or…
We study the risk criterion for investments based on the drawdown from the maximal value of the capital in the past. Depending on investor's risk attitude, thus his risk exposure, we find that the distribution of these drawdowns follows a…