Related papers: Stochastic model of a pension plan
As the number of publicly traded companies as well as the amount of their financial data grows rapidly, it is highly desired to have tracking, analysis, and eventually stock selections automated. There have been few works focusing on…
We study the effects of non-systematic and systematic mortality risks on the required initial capital in a pension plan, in the presence of financial risks. We discover that for a pension plan with few members the impact of pooling on the…
We present an analytical model to study the role of expectation feedbacks and overlapping portfolios on systemic stability of financial systems. Building on [Corsi et al., 2016], we model a set of financial institutions having Value at Risk…
We show that financial correlations exhibit a non-trivial dynamic behavior. We introduce a simple phenomenological model of a multi-asset financial market, which takes into account the impact of portfolio investment on price dynamics. This…
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…
This paper resolves Aaron's social insurance paradox, which suggests that introducing a pay-as-you-go (PAYG) pension system increases welfare when population growth plus average wage growth exceeds interest rates. Using a simplified…
Prior to the financial crisis mortgage securitization models increased in sophistication as did products built to insure against losses. Layers of complexity formed upon a foundation that could not support it and as the foundation crumbled…
Model uncertainty is a type of inevitable financial risk. Mistakes on the choice of pricing model may cause great financial losses. In this paper we investigate financial markets with mean-volatility uncertainty. Models for stock markets…
This paper studies a novel stochastic compartmental model that describes the dynamics of trust in society. The population is split into three compartments representing levels of trust in society: trusters, skeptics and doubters. The focus…
In this paper, we study the robust optimal investment and risk control problem for an insurer who owns the insider information about the financial market and the insurance market under model uncertainty. Both financial risky asset process…
A Markovian modulation captures the trend in the market and influences the market coefficients accordingly. The different scenarios presented by the market are modeled as the distinct states of a discrete-time Markov chain. In our paper, we…
We take a new look at the problem of disentangling the volatility and jumps processes of daily stock returns. We first provide a computational framework for the univariate stochastic volatility model with Poisson-driven jumps that offers a…
Consider an insurance company exposed to a stochastic economic environment that contains two kinds of risk. The first kind is the insurance risk caused by traditional insurance claims, and the second kind is the financial risk resulting…
In this paper we propose a novel application of Gaussian processes (GPs) to financial asset allocation. Our approach is deeply rooted in Stochastic Portfolio Theory (SPT), a stochastic analysis framework introduced by Robert Fernholz that…
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 propose and discuss some toy models of stock markets using the same operatorial approach adopted in quantum mechanics. Our models are suggested by the discrete nature of the number of shares and of the cash which are exchanged in a real…
Fund models are statistical descriptions of markets where all asset returns are spanned by the returns of a lower-dimensional collection of funds, modulo orthogonal noise. Equivalently, they may be characterised as models where the global…
A new model for stocks markets using integer values for each stock price is presented. In contrast with previously reported models, the variables used in the model are not of binary type, but of more general integer type. It is shown how…
There is substantial empirical evidence showing the fundamental portfolio outperforming the market portfolio. Here a theoretical foundation is laid that supports this empirical research. Assuming stock prices revert around fundamental…
We consider a multi-stock continuous time incomplete market model with random coefficients. We study the investment problem in the class of strategies which do not use direct observations of the appreciation rates of the stocks, but rather…