Related papers: Deterministic Income with Deterministic and Stocha…

Income- and price-elasticity of demand quantify the responsiveness of markets to changes in income, and in prices, respectively. Under the assumptions of utility maximization and preference-independence (additive preferences), mathematical…

We propose a strategy for automated trading, outline theoretical justification of the profitability of this strategy and overview the hypothetical results in application to currency pairs trading. The proposed methodology relies on the…

In studying randomized search heuristics, a frequent quantity of interest is the first time a (real-valued) stochastic process obtains (or passes) a certain value. The processes under investigation commonly show a bias towards this goal,…

We consider a linear stochastic differential equation with stochastic drift. We study the problem of approximating the solution of such equation through an Ornstein-Uhlenbeck type process, by using direct methods of calculus of variations.…

In this paper we propose a look at the capital risk problem inspired by deterministic, known from classical mechanics, problem of juggling. We propose capital equivalents to the Newton's laws of motion and on this basis we determine the…

In this paper we develop a framework for estimating Probability of Default (PD) based on stochastic models governing an appropriate asset value processes. In particular, we build upon a L\'evy-driven Ornstein-Uhlenbeck process and consider…

We consider an optimal investment and consumption problem for a Black-Scholes financial market with stochastic volatility and unknown stock appreciation rate. The volatility parameter is driven by an external economic factor modeled as a…

This paper establishes a non-stochastic analogue of the celebrated result by Dubins and Schwarz about reduction of continuous martingales to Brownian motion via time change. We consider an idealized financial security with continuous price…

Consider the problem of a central bank that wants to manage the exchange rate between its domestic currency and a foreign one. The central bank can purchase and sell the foreign currency, and each intervention on the exchange market leads…

We introduce a price impact model which accounts for finite market depth, tightness and resilience. Its coupled bid- and ask-price dynamics induce convex liquidity costs. We provide existence of an optimal solution to the classical problem…

We consider a fractional Ornstein-Uhlenbeck process involving a stochastic forcing term in the drift, as a solution of a linear stochastic differential equation driven by a fractional Brownian motion. For such process we specify mean and…

We analyze an irreversible investment decision for a project which yields a flow of future operating profits given by a geometric Brownian motion with unknown drift. In contrast to similar optimal stopping problems with incomplete…

Even in the face of deteriorating and highly volatile demand, firms often invest in, rather than discard, aging technologies. In order to study this phenomenon, we model the firm's profit stream as a Brownian motion with negative drift. At…

In the classical model of stock prices which is assumed to be Geometric Brownian motion, the drift and the volatility of the prices are held constant. However, in reality, the volatility does vary. In quantitative finance, the Heston model…

We consider a discrete-time dividend payout problem with risk sensitive shareholders. It is assumed that they are equipped with a risk aversion coefficient and construct their discounted payoff with the help of the exponential premium…

A continuous-time consumption-investment model with constraint is considered for a small investor whose decisions are the consumption rate and the allocation of wealth to a risk-free and a risky asset with logarithmic Brownian motion…

This paper presents an axiomatic scheme for interest rate models in discrete time. We take a pricing kernel approach, which builds in the arbitrage-free property and provides a link to equilibrium economics. We require that the pricing…

We investigate the power of randomness in the context of a fundamental Bayesian optimal mechanism design problem--a single seller aims to maximize expected revenue by allocating multiple kinds of resources to "unit-demand" agents with…

We consider an optimal stochastic impulse control problem over an infinite time horizon motivated by a model of irreversible investment choices with fixed adjustment costs. By employing techniques of viscosity solutions and relying on…

We propose a model for the credit markets in which the random default times of bonds are assumed to be given as functions of one or more independent "market factors". Market participants are assumed to have partial information about each of…