Related papers: Hedging of defaultable claims in a structural mode…
A common assumption in financial engineering is that the market price for any derivative coincides with an objectively defined risk-neutral price - a plausible assumption only if traders collectively possess objective knowledge about the…
With model uncertainty characterized by a convex, possibly non-dominated set of probability measures, the agent minimizes the cost of hedging a path dependent contingent claim with given expected success ratio, in a discrete-time,…
We investigate the adaptive robust control framework for portfolio optimization and loss-based hedging under drift and volatility uncertainty. Adaptive robust problems offer many advantages but require handling a double optimization problem…
While defaults are rare events, losses can be substantial even for credit portfolios with a large number of contracts. Therefore, not only a good evaluation of the probability of default is crucial, but also the severity of losses needs to…
The pricing of derivatives tied to baskets of assets demands a sophisticated framework that aligns with the available market information to capture the intricate non-linear dependency structure among the assets. We describe the dynamics of…
In this work, phase-field modeling of hydraulic fractures in porous media is extended towards a global-local approach. Therein, the failure behavior is solely analyzed in a (small) local domain. In the surrounding medium, a simplified and…
In this paper we develop a tractable structural model with analytical default probabilities depending on some dynamics parameters, and we show how to calibrate the model using a chosen number of Credit Default Swap (CDS) market quotes. We…
We establish a nondominated version of the optional decomposition theorem in a setting that includes jump processes with nonvanishing diffusion as well as general continuous processes. This result is used to derive a robust superhedging…
This paper presents a model to describe contractual dispute resolution by mediation in situations where a defaulting supplier is near insolvent. While each party has internal constraints, and if alternate performances are available, such as…
We develop static and dynamic approaches for hedging of the impermanent loss (IL) of liquidity provision (LP) staked at Decentralised Exchanges (DEXes) which employ Uniswap V2 and V3 protocols. We provide detailed definitions and formulas…
In this paper, we study an optimal excess-of-loss reinsurance and investment problem for an insurer in defaultable market. The insurer can buy reinsurance and invest in the following securities: a bank account, a risky asset with stochastic…
We illustrate how to compute local risk minimization (LRM) of call options for exponential L\'evy models. We have previously obtained a representation of LRM for call options; here we transform it into a form that allows use of the fast…
A local projection model is defined by a set of linear regressions that account for the associations between exogenous variables and an endogenous variable observed at different time points. While it is standard practice to separately…
We develop and analyze $M$-estimation methods for divergence functionals and the likelihood ratios of two probability distributions. Our method is based on a non-asymptotic variational characterization of $f$-divergences, which allows the…
Machine learning systems deployed in the real world must operate under dynamic and often unpredictable distribution shifts. This challenges the validity of statistical safety assurances on the system's risk established beforehand. Common…
This work studies the dynamic risk management of the risk-neutral value of the potential credit losses on a portfolio of derivatives. Sensitivities-based hedging of such liability is sub-optimal because of bid-ask costs, pricing models…
We propose a flexible framework for hedging a contingent claim by holding static positions in vanilla European calls, puts, bonds, and forwards. A model-free expression is derived for the optimal static hedging strategy that minimizes the…
We study the use of Temporal-Difference learning for estimating the structural parameters in dynamic discrete choice models. Our algorithms are based on the conditional choice probability approach but use functional approximations to…
We study hedging and pricing of unattainable contingent claims in a non-Markovian regime-switching financial model. Our financial market consists of a bank account and a risky asset whose dynamics are driven by a Brownian motion and a…
We study the Hull-White model for the term structure of interest rates in the presence of volatility uncertainty. The uncertainty about the volatility is represented by a set of beliefs, which naturally leads to a sublinear expectation and…