Related papers: Corporate Security Prices in Structural Credit Ris…
In this paper, we propose an equilibrium pricing model in a dynamic multi-period stochastic framework with uncertain income streams. In an incomplete market, there exist two traded risky assets (e.g. stock/commodity and weather derivative)…
We investigate a statistical-static hedging technique for pricing assets considered as single-step stochastic cash flows. The valuation is based on constructing in a canonical way a European style derivative on a benchmark security such…
We study the effect of parameter uncertainty on a stochastic diffusion model, in particular the impact on the pricing of contingent claims, using methods from the theory of Dirichlet forms. We apply these techniques to hedging procedures in…
This paper presents an augmented deep factor model that generates latent factors for cross-sectional asset pricing. The conventional security sorting on firm characteristics for constructing long-short factor portfolio weights is nonlinear…
Value adjustment of uncollateralized trades is determined within a risk-neutral pricing framework. When hedging such trades, investors cannot freely trade protection on their own name, thus facing an incomplete market. This fact is…
A derivative is a financial security whose value is a function of underlying traded assets and market outcomes. Pricing a financial derivative involves setting up a market model, finding a martingale (``fair game") probability measure for…
We solve the problem of super-hedging European or Asian options for discrete-time financial market models where executable prices are uncertain. The risky asset prices are not described by single-valued processes but measurable selections…
In this article we present a new approach to the numerical valuation of derivative securities. The method is based on our previous work where we formulated the theory of pricing in terms of tradables. The basic idea is to fit a finite…
Risk-neutral pricing dictates that the discounted derivative price is a martingale in a measure equivalent to the economic measure. The residual ambiguity for incomplete markets is here resolved by minimising the entropy of the price…
We discuss the pricing of defaultable assets in an incomplete information model where the default time is given by a first hitting time of an unobservable process. We show that in a fairly general Markov setting, the indicator function of…
We consider a structural credit model for a large portfolio of credit risky assets where the correlation is due to a market factor. By considering the large portfolio limit of this system we show the existence of a density process for the…
We use a continuous version of the standard deviation premium principle for pricing in incomplete equity markets by assuming that the investor issuing an unhedgeable derivative security requires compensation for this risk in the form of a…
We construct an utility-based dynamic asset pricing model for a limit order market. The price is nonlinear in volume and subject to market impact. We solve an optimal hedging problem under the market impact and derive the dynamics of the…
We consider insurance derivatives depending on an external physical risk process, for example a temperature in a low dimensional climate model. We assume that this process is correlated with a tradable financial asset. We derive optimal…
Much research in systemic risk is focused on default contagion. While this demands an understanding of valuation, fewer articles specifically deal with the existence, the uniqueness, and the computation of equilibrium prices in structural…
Foundation models - already transformative in domains such as natural language processing - are now starting to emerge for time-series tasks in finance. While these pretrained architectures promise versatile predictive signals, little is…
In this work, we study a dynamic portfolio optimization problem related to pairs trading, which is an investment strategy that matches a long position in one security with a short position in another security with similar characteristics.…
The determination of acceptability prices of contingent claims requires the choice of a stochastic model for the underlying asset price dynamics. Given this model, optimal bid and ask prices can be found by stochastic optimization. However,…
This paper presents a new model for pricing financial derivatives subject to collateralization. It allows for collateral arrangements adhering to bankruptcy laws. As such, the model can back out the market price of a collateralized…
In this paper we consider a reduced-form intensity-based credit risk model with a hidden Markov state process. A filtering method is proposed for extracting the underlying state given the observation processes. The method may be applied to…