Related papers: Hedging of defaultable claims in a structural mode…
This paper presents a new model for pricing financial derivatives subject to collateralization. It allows for collateral arrangements adhering to bankruptcy laws. As such, the model can back out the market price of a collateralized…
In the paper we develop mathematical tools of quantile hedging in incomplete market. Those could be used for two significant applications: o calculating the \textbf{optimal capital requirement imposed by Solvency II} (Directive 2009/138/EC…
Locational Marginal Price (LMP) is a dual variable associated with supply-demand matching and represents the cost of delivering power to a particular location if the load at that location increases. In recent times it become more volatile…
For quantitative trading risk management purposes, we present a novel idea: the realized local volatility surface. Concisely, it stands for the conditional expected volatility when sudden market behaviors of the underlying occur. One is…
A hydraulic fracturing system with super-hydrophobic proppants is characterized by a transient triple-porosity Navier-Stokes model. For this complex multiphysics system, particularly in the context of three-dimensional space, a local…
It is shown that delta hedging provides the optimal trading strategy in terms of minimal required initial capital to replicate a given terminal payoff in a continuous-time Markovian context. This holds true in market models where no…
We propose a new `hedged' Monte-Carlo (HMC) method to price financial derivatives, which allows to determine simultaneously the optimal hedge. The inclusion of the optimal hedging strategy allows one to reduce the financial risk associated…
We consider search problems with nonobligatory inspection and single-item or combinatorial selection. A decision maker is presented with a number of items, each of which contains an unknown price, and can pay an inspection cost to observe…
This paper investigates the dynamic reinsurance design problem under the mean-variance criterion, incorporating heterogeneous beliefs between the insurer and the reinsurer, and introducing an incentive compatibility constraint to address…
Sustaining efficiency and stability by properly controlling the equity to asset ratio is one of the most important and difficult challenges in bank management. Due to unexpected and abrupt decline of asset values, a bank must closely…
The field of risk theory has traditionally focused on ruin-related quantities. In particular, the socalled Expected Discounted Penalty Function has been the object of a thorough study over the years. Although interesting in their own right,…
We consider a piecewise deterministic Markov decision process, where the expected exponential utility of total (nonnegative) cost is to be minimized. The cost rate, transition rate and post-jump distributions are under control. The state…
New kind of differential equations, called local fractional differential equations, has been proposed for the first time. They involve local fractional derivatives introduced recently. Such equations appear to be suitable to deal with…
This study delves into the intricate realm of risk evaluation within the domain of specific financial derivatives, notably options. Unlike other financial instruments, like bonds, options are susceptible to broader risks. A distinctive…
Credit Value Adjustment (CVA) is the difference between the value of the default-free and credit-risky derivative portfolio, which can be regarded as the cost of the credit hedge. Default probabilities are therefore needed, as input…
We develop a class of non-life reserving models using a stable-1/2 random bridge to simulate the accumulation of paid claims, allowing for an essentially arbitrary choice of a priori distribution for the ultimate loss. Taking an…
Progressive Hedging is a popular decomposition algorithm for solving multi-stage stochastic optimization problems. A computational bottleneck of this algorithm is that all scenario subproblems have to be solved at each iteration. In this…
In this paper, a non-linear p-robust hub location problem is extended to a risky environment where augmented chance constraint with a min-max regret form is employed to consider network risk as one of the objectives. The model considers…
In this paper we present a novel approach for firm default probability estimation. The methodology is based on multivariate contingent claim analysis and pair copula constructions. For each considered firm, balance sheet data are used to…
This paper addresses the risk-minimization problem, with and without mortality securitization, \`a la F\"ollmer-Sondermann for a large class of equity-linked mortality contracts when no model for the death time is specified. This framework…