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A negative basis trade enters a long bond position and buys protection on the issuer of the bond through credit default swap (CDS), aiming at arbitrage profit due to the bond-CDS basis. To classic reduced form model theorists, the existence…
We propose a versatile Monte-Carlo method for pricing and hedging options when the market is incomplete, for an arbitrary risk criterion (chosen here to be the expected shortfall), for a large class of stochastic processes, and in the…
In this paper we provide evidence that financial option markets for equity indices give rise to non-trivial dependency structures between its constituents. Thus, if the individual constituent distributions of an equity index are inferred…
In this work a method to regularize Cox frailty models is proposed that accommodates time-varying covariates and time-varying coefficients and is based on the full instead of the partial likelihood. A particular advantage in this framework…
Freight rate derivatives constitute a very popular financial tool in shipping industry, that allows to the market participants and the individuals operating in the field, to reassure their financial positions against the risk occurred by…
The modeling of the probability of joint default or total number of defaults among the firms is one of the crucial problems to mitigate the credit risk since the default correlations significantly affect the portfolio loss distribution and…
This paper presents hedging strategies for European and exotic options in a Levy market. By applying Taylor's Theorem, dynamic hedging portfolios are con- structed under different market assumptions, such as the existence of power jump…
We consider the jump-diffusion risky asset model and study its conditional prediction laws. Next, we explain the conditional least square hedging strategy and calculate its closed form for the jump-diffusion model, considering the…
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…
In this paper we propose a new nonparametric approach to interacting failing systems (FS), that is systems whose probability of failure is not negligible in a fixed time horizon, a typical example being firms and financial bonds. The main…
Model-based process simulation can be used to derive designs and operating conditions of chemical processes that optimally balance multiple objectives, such as quality, costs, or environmental impacts. This work focuses on identifying…
We investigate upper and lower hedging prices of multivariate contingent claims from the viewpoint of game-theoretic probability and submodularity. By considering a game between "Market" and "Investor" in discrete time, the pricing problem…
In recent studies the truncated Levy process (TLP) has been shown to be very promising for the modeling of financial dynamics. In contrast to the Levy process, the TLP has finite moments and can account for both the previously observed…
Abstract This paper proposes a novel approach to Bermudan swaption hedging by applying the deep hedging framework to address limitations of traditional arbitrage-free methods. Conventional methods assume ideal conditions, such as zero…
Nonparametric methods for the estimation of the Levy density of a Levy process are developed. Estimators that can be written in terms of the ``jumps'' of the process are introduced, and so are discrete-data based approximations. A model…
We give a comprehensive review of credit term structure modeling methodologies. The conventional approach to modeling credit term structure is summarized and shown to be equivalent to a particular type of the reduced form credit risk model,…
This article proposes a method for measuring the latent risks involved in the recovery process of non performing loans in financial institutions and business firms that deal with collection and recovery processes. To that end, we apply the…
We consider the pricing and hedging of exotic options in a model-independent set-up using \emph{shortfall risk and quantiles}. We assume that the marginal distributions at certain times are given. This is tantamount to calibrating the model…
This paper introduces a relative model risk measure of a product priced with a given model, with respect to another reference model for which the market is assumed to be driven. This measure allows comparing products valued with different…
A robust fixed-lag smoothing approach is proposed in the case there is a mismatch between the nominal model and the actual model. The resulting robust smoother is characterized by a dynamic game between two players: one player selects the…