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We show how to analyze and interpret the correlation structures, the conditional expectation values and correlation coefficients of exchangeable Bernoulli random variables. We study implied default distributions for the iTraxx-CJ tranches…
This article introduces a novel hybrid regime identification-forecasting framework designed to enhance multi-asset portfolio construction by integrating asset-specific regime forecasts. Unlike traditional approaches that focus on broad…
This paper focuses on a dynamic multi-asset mean-variance portfolio selection problem under model uncertainty. We develop a continuous time framework for taking into account ambiguity aversion about both expected return rates and…
We develop a finite horizon continuous time market model, where risk averse investors maximize utility from terminal wealth by dynamically investing in a risk-free money market account, a stock written on a default-free dividend process,…
How to price and hedge claims on nontraded assets are becoming increasingly important matters in option pricing theory today. The most common practice to deal with these issues is to use another similar or "closely related" asset or index…
Missing time-series data is a prevalent problem in many prescriptive analytics models in operations management, healthcare and finance. Imputation methods for time-series data are usually applied to the full panel data with the purpose of…
Hydrogeologic models are commonly over-smoothed relative to reality, owing to the difficulty of obtaining accurate high-resolution information about the subsurface. When used in an inversion context, such models may introduce systematic…
Different models of capital exchange among economic agents have been proposed recently trying to explain the emergence of Pareto's wealth power law distribution. One important factor to be considered is the existence of risk aversion. In…
The conditional average treatment effect (CATE) is frequently estimated to refute the homogeneous treatment effect assumption. Under this assumption, all units making up the population under study experience identical benefit from a given…
The aggregation of individual risks in large credit and insurance portfolios is guided by diversification and the law of large numbers, which formalizes the convergence of sample averages to their means. At the same time, regulatory capital…
Nonlinear longitudinal proportional effect models have been proposed to improve power and provide direct estimates of the proportional treatment effect in randomized clinical trials. These models assume a fixed proportional treatment effect…
We consider a model of financial contagion in a bipartite network of assets and banks recently introduced in the literature, and we study the effect of power law distributions of degree and balance-sheet size on the stability of the system.…
This paper examines a heterogeneous beliefs model in which there is a process that is only partially observed by the agents. The economy contains a risky asset producing dividends continuously in time. The dividends are observed by the…
Stress testing poses a causal question: how would portfolio credit losses change if the macroeconomy followed an adverse counterfactual path? Yet standard practice remains predictive and might be therefore vulnerable to omitted-variable…
Within the framework of maximum entropy principle we show that the finite-size long-range Ising model is the adequate model for the description of homogeneous credit portfolios and the computation of credit risk when default correlations…
We construct and analyze symmetrized delay correlation matrices for empirical data sets for atmopheric and financial data to derive information about correlation between different entities of the time series over time. The information about…
In this paper, we introduce a method to optimally estimate time-varying frequency bias. Current industry practice is to assume that frequency bias is changing only on annual basis. We suggest that this improved time-dependent bias estimate…
We investigate financial market correlations using random matrix theory and principal component analysis. We use random matrix theory to demonstrate that correlation matrices of asset price changes contain structure that is incompatible…
Mortgage default rates, on the one hand, serve as a measure of economic health to support decision-making by insurance companies, and on the other hand, is a key risk factor in the asset-liability management (ALM) practice, as mortgage…
We study the pricing of credit derivatives with asymmetric information. The managers have complete information on the value process of the firm and on the default threshold, while the investors on the market have only partial observations,…