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This paper studies robust forward investment and consumption preferences within a zero-volatility context. Different from previous works, we consider an incomplete financial market model due to general investment portfolio constraints. We…
In this chapter we first briefly review the existing approaches to hedging in rough volatility models. Next, we present a simple but general result which shows that in a one-factor rough stochastic volatility model, any option may be…
This paper investigates the robust {non-zero-sum} games in an aggregated {overfunded} defined benefit (abbr. DB) pension plan. The sponsoring firm is concerned with the investment performance of the fund surplus while the participants act…
There is growing interest in the design of pension annuities that insure against idiosyncratic longevity risk while pooling and sharing systematic risk. This is partially motivated by the desire to reduce capital and reserve requirements…
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 model investor heterogeneity using different required returns on an investment and evaluate the impact on the valuation of an investment. By assuming no disagreement on the cash flows, we emphasize how risk preferences in particular, but…
This paper assesses the hedge effectiveness of an index-based longevity swap and a longevity cap. Although swaps are a natural instrument for hedging longevity risk, derivatives with non-linear pay-offs, such as longevity caps, also provide…
This paper researches the problem of purchasing deferred term insurance in the context of financial planning to maximize the probability of achieving a personal financial goal. Specifically, our study starts from the perspective of hedging…
In recent years, a market for mortality derivatives began developing as a way to handle systematic mortality risk, which is inherent in life insurance and annuity contracts. Systematic mortality risk is due to the uncertain development of…
A Hedge Fund Index is very useful for tracking the performance of hedge fund investments, especially the timing of fund redemption. This paper presents a methodology for constructing a hedge fund index that is more like a quantitative fund…
The hypothesis that there do not exist free lunches with vanishing risk (FLVRs) in the real market underpins the popular risk-neutral pricing and hedging methodology in quantitative finance. The paper documents the fact that this hypothesis…
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…
This paper investigates a novel behavioral feature of recursive preferences: aversion to risks that persist over time, or simply \textit{correlation aversion}. Greater persistence provides information about future consumption but reduces…
United States (US) IG bonds typically trade at modest spreads over US Treasuries, reflecting the credit risk tied to a corporation's default potential. During market crises, IG spreads often widen and liquidity tends to decrease, likely due…
We investigate models of the life annuity insurance when the company invests its reserve into a risky asset with price following a geometric Brownian motion. Our main result is an exact asymptotic of the ruin probabilities for the case of…
If a financial asset's price movement impacts a firm's product demand, the firm can respond to the impact by adjusting its operational decisions. For example, in the automotive industry, car makers decrease the selling prices of…
Reducing financial risk is of paramount importance to investors, financial institutions, and corporations. Since the pioneering contribution of Johnson (1960), the optimal hedge ratio based on futures is regularly utilized. The current…
Emerging market hard-currency bonds are an asset class of growing importance, and contain exposure to an EM sovereign and the underlying industry. The authors investigate how to model this as a modification of the well-known…
Hedging is a strategy for softening the impact of a statement in conversation. In reducing the strength of an expression, it may help to avoid embarrassment (more technically, ``face threat'') to one's listener. For this reason, it is often…
We propose a novel approach to infer investors' risk preferences from their portfolio choices, and then use the implied risk preferences to measure the efficiency of investment portfolios. We analyze a dataset spanning a period of six…