Related papers: Financial Models with Defaultable Num\'eraires
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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…
We consider a popular model of microeconomics with countably many assets: the Arbitrage Pricing Model. We study the problem of optimal investment under an expected utility criterion and look for conditions ensuring the existence of optimal…
I show that if the capital accumulation dynamics is stochastic a new term, in addition to that given by accounting prices, has to be introduced in order to derive a correct estimate of the genuine wealth of an economy. In a simple model…
We build a general model for pricing defaultable claims. In addition to the usual absence of arbitrage assumption, we assume that one defaultable asset (at least) looses value when the default occurs. We prove that under this assumption, in…
Understanding the notion of a model is not always easy in logic courses. Hence, tools such as Euler diagrams are frequently applied as informal illustrations of set-theoretical models. We formally investigate Euler diagrams as an…
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A basic requirement for a mathematical model is often that its solution (output) shouldn't change much if the model's parameters (input) are perturbed. This is important because the exact values of parameters may not be known and one would…
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We introduce a regularization approach to arbitrage-free factor-model selection. The considered model selection problem seeks to learn the closest arbitrage-free HJM-type model to any prespecified factor-model. An asymptotic solution to…
This work studies the valuation of currency options in markets suffering from a financial crisis. We consider a European option where the underlying asset is a foreign currency. We assume that the value of the underlying asset is a…
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We construct a finite element like scheme for fully non-linear integro-partial differential equations arising in optimal control of jump-processes. Special cases of these equations include optimal portfolio and option pricing equations in…
Traditional economic models typically treat private information, or signals, as generated from some underlying state. Recent work has explicated alternative models, where signals correspond to interpretations of available information. We…
We study the emergence of instabilities in a stylized model of a financial market, when different market actors calculate prices according to different (local) market measures. We derive typical properties for ensembles of large random…
We consider a market model where there are two levels of information. The public information generated by the financial assets, and a larger flow of information that contains additional knowledge about a random time. This random time can…
We study the local volatility function in the Foreign Exchange market where both domestic and foreign interest rates are stochastic. This model is suitable to price long-dated FX derivatives. We derive the local volatility function and…
A theoretical self-sustainable economic model is established based on the fundamental factors of production, consumption, reservation and reinvestment, where currency is set as a unconditional credit symbol serving as transaction equivalent…
Deciding whether a model provides a good description of data is often based on a goodness-of-fit criterion summarized by a p-value. Although there is considerable confusion concerning the meaning of p-values, leading to their misuse, they…