Related papers: On Correlated Defaults and Incomplete Information
The current research on credit risk is primarily focused on modeling default probabilities. Recovery rates are often treated as an afterthought; they are modeled independently, in many cases they are even assumed constant. This is despite…
Financial contagion has been widely recognized as a fundamental risk to the financial system. Particularly potent is price-mediated contagion, wherein forced liquidations by firms depress asset prices and propagate financial stress,…
This article introduces a novel construction of the two-dimensional fractional Brownian motion (2D fBm) with dependent components. Unlike similar models discussed in the literature, our approach uniquely accommodates the full range of model…
We consider a Brownian particle which, in addition to being in contact with a thermal bath, is driven by fluctuating forces which stem from active processes in the system, such as self-propulsion or collisions with other active particles.…
This study deals with the problem of pricing compound options when the underlying asset follows a mixed fractional Brownian motion with jumps. An analytic formula for compound options is derived under the risk neutral measure. Then, these…
This article extends the autoregressive count time series model class by allowing for a model with regimes, that is, some of the parameters in the model depend on the state of an unobserved Markov chain. We develop a quasi-maximum…
The first half of the paper is devoted to description and implementation of statistical tests arguing for the presence of a Brownian component in the inventories and wealth processes of individual traders. We use intra-day data from the…
This paper studies the optimal risk-averse timing to sell a risky asset. The investor's risk preference is described by the exponential, power, or log utility. Two stochastic models are considered for the asset price -- the geometric…
We examine weak anticipations in discrete-time and continuous-time financial markets consisting of one risk-free asset and multiple risky assets, defining a minimal probability measure associated with the anticipation that does not depend…
Drawdowns measuring the decline in value from the historical running maxima over a given period of time, are considered as extremal events from the standpoint of risk management. To date, research on the topic has mainly focus on the side…
Many recent studies use individual longitudinal data to analyze job search behaviors. Such data allow the use of fixed-effects models, which supposedly address the issue of dynamic selection and make it possible to identify the structural…
We address the problem of asset pricing in a market where there is no risky asset. Previous work developed a theoretical model for a shadow riskless rate (SRR) for such a market in terms of the drift component of the state-price deflator…
We derive the probability density function of the positive occupation time of one-dimensional Brownian motion with two-valued drift. Long time asymptotics of the density are also computed. We use the result to describe the transitional…
We study the informational efficiency of a market with a single traded asset. The price initially differs from the fundamental value, about which the agents have noisy private information (which is, on average, correct). A fraction of…
Mathematically, the execution of an American-style financial derivative is commonly reduced to solving an optimal stopping problem. Breaking the general assumption that the knowledge of the holder is restricted to the price history of the…
This paper deals with control of partially observable discrete-time stochastic systems. It introduces and studies Markov Decision Processes with Incomplete Information and with semi-uniform Feller transition probabilities. The important…
Double (debiased) machine learning (DML) has seen widespread use in recent years for learning causal/structural parameters, in part due to its flexibility and adaptability to high-dimensional nuisance functions as well as its ability to…
In dynamic capital structure models with an investor break-even condition, the firm's Bellman equation may not generate a contraction mapping, so the standard existence and uniqueness conditions do not apply. First, we provide an example…
We study a financial market where the risky asset is modelled by a geometric It\^o-L\'{e}vy process, with a singular drift term. This can for example model a situation where the asset price is partially controlled by a company which…
The intermittent intake of treatment is commonly seen in patients with chronic disease. For example, patients with atrial fibrillation may need to discontinue the oral anticoagulants when they experience a certain surgery and re-initiate…