Related papers: Elasticity theory of structuring
The proposed model is aimed to reveal important patterns in the behavior of a simplified financial system. The patterns could be detected as regular cycles consisting of debt bubbles and crises. Financial cycles have a well defined…
Randomized mechanisms can have good normative properties compared to their deterministic counterparts. However, randomized mechanisms are problematic in several ways such as in their verifiability. We propose here to derandomize such…
Probabilistic game structures combine both nondeterminism and stochasticity, where players repeatedly take actions simultaneously to move to the next state of the concurrent game. Probabilistic alternating simulation is an important tool to…
Prediction is a complex notion, and different predictors (such as people, computer programs, and probabilistic theories) can pursue very different goals. In this paper I will review some popular kinds of prediction and argue that the theory…
Traditional economic models typically treat private information, or signals, as generated from some underlying state. Recent work has explicated alternative models, where signals correspond to interpretations of available information. We…
Stablecoins are one of the most widely capitalized type of cryptocurrency. However, their risks vary significantly according to their design and are often poorly understood. We seek to provide a sound foundation for stablecoin theory, with…
Volatility is the canonical measure of financial risk, a role largely inherited from Modern Portfolio Theory. Yet, its universality rests on restrictive efficiency assumptions that render volatility, at best, an incomplete proxy for true…
In this review article we explore several recent advances in the quantitative modeling of financial markets. We begin with the Efficient Markets Hypothesis and describe how this controversial idea has stimulated a number of new directions…
The complexity of the operating environment and required technologies for highly automated driving is unprecedented. A different type of threat to safe operation besides the fault-error-failure model by Laprie et al. arises in the form of…
Excessive leverage, i.e. the abuse of debt financing, is considered one of the primary factors in the default of financial institutions. Systemic risk results from correlations between individual default probabilities that cannot be…
An abstraction of normal form games is proposed, called Feasibility/Desirability Games (or FD Games in short). FD Games can be seen from three points of view: as a new presentation of games in which Nash equilibria can be found, as choice…
The article presents a translation of some widespread financial terminology into the language of decision theory. For instance, financial leverage can be regarded as an object of choice or a decision. We show how the optics of decision…
We assume that an individual invests in a financial market with one riskless and one risky asset, with the latter's price following a diffusion with stochastic volatility. In the current financial market especially, it is important to…
There are many studies on development of models for analyzing some derivatives such as credit default swaps .
In repeated-game applications where both the collusive and non-collusive outcomes can be supported as equilibria, researchers must resolve underlying selection questions if theory will be used to understand counterfactual policies. One…
In complete markets, there are risky assets and a riskless asset. It is assumed that the riskless asset and the risky asset are traded continuously in time and that the market is frictionless. In this paper, we propose a new method for…
This article describes and explores taxes and debt in finance. Here a situation is thought about, where tax payments would qualify to be considered as debt. Using this principle we can infer that it is possible to create and price a type of…
We introduce a simple stochastic dynamics for game theory. It assumes ``local'' rationality in the sense that any player climbs the gradient of his utility function in the presence of a stochastic force which represents deviation from…
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 study procurement design when the buyer is uncertain about both the value of the good and the seller's cost. The buyer has a conjectured model but does not fully trust it. She first identifies mechanisms that maximize her worst-case…