Related papers: Discounting with Imperfect Collateral
Variable independence and decomposability are algorithmic techniques for simplifying logical formulas by tearing apart connections between free variables. These techniques were originally proposed to speed up query evaluation in constraint…
The rate-distortion curve captures the fundamental tradeoff between compression length and resolution in lossy data compression. However, it conceals the underlying dynamics of optimal source encodings or test channels. We argue that these…
Given a finite collection of stochastic alternatives, we study the problem of sequentially allocating a fixed sampling budget to identify the optimal alternative with a high probability, where the optimal alternative is defined as the one…
This paper studies a class of optimal multiple stopping problems driven by L\'evy processes. Our model allows for a negative effective discount rate, which arises in a number of financial applications, including stock loans and real…
We obtain an explicit formula for the bilateral counterparty valuation adjustment of a credit default swaps portfolio referencing an asymptotically large number of entities. We perform the analysis under a doubly stochastic intensity…
In this paper, we analyse some equity-linked contracts that are related to drawdown and drawup events based on assets governed by a geometric spectrally negative L\'evy process. Drawdown and drawup refer to the differences between the…
Discontinuities can be fairly arbitrary but also cause a significant impact on outcomes in larger systems. Indeed, their arbitrariness is why they have been used to infer causal relationships among variables in numerous settings. Regression…
Credit value adjustment (CVA) is the charge applied by financial institutions to the counterparty to cover the risk of losses on a counterpart default event. In this paper we estimate such a premium under the Bates stochastic model (Bates…
We develop a reinforcement learning (RL) framework for insurance loss reserving that formulates reserve setting as a finite-horizon sequential decision problem under claim development uncertainty, macroeconomic stress, and solvency…
We extend the scope of differential machine learning and introduce a new breed of supervised principal component analysis to reduce dimensionality of Derivatives problems. Applications include the specification and calibration of pricing…
The Inexact Restoration approach has proved to be an adequate tool for handling the problem of minimizing an expensive function within an arbitrary feasible set by using different degrees of precision in the objective function. The Inexact…
Margin system for margin loans using cash and stock as collateral is considered in this paper, which is the line of defence for brokers against risk associated with margin trading. The conditional probability of negative return is used as…
Valuation adjustments are nowadays a common practice to include credit and liquidity effects in option pricing. Funding costs arising from collateral procedures, hedging strategies and taxes are added to option prices to take into account…
Put-call parity is a terminal-payoff identity; quoted residuals against traded futures are near zero. Yet enforcing parity is path-dependent, exposing arbitrageurs to daily settlement, margin, and finite capital. Using minute-level NBBO…
Independent Component Analysis (ICA) is a statistical tool that decomposes an observed random vector into components that are as statistically independent as possible. ICA over finite fields is a special case of ICA, in which both the…
We introduce an innovative theoretical framework to model derivative transactions between defaultable entities based on the principle of arbitrage freedom. Our framework extends the traditional formulations based on Credit and Debit…
We consider the problem of determining a sequence of payments among a set of entities that clear (if possible) the liabilities among them. We formulate this as an optimal control problem, which is convex when the objective function is, and…
Managing insurance and financial risk when data is limited is a key task in the insurance industry. In this paper, we focus on cases where the risk distribution is modeled as a mixture with some components estimable to high precision or…
This paper studies the problem of optimal investment with CRRA (constant, relative risk aversion) preferences, subject to dynamic risk constraints on trading strategies. The market model considered is continuous in time and incomplete. the…
The aim of this paper is to present a dual-term structure model of interest rate derivatives in order to solve the two hardest problems in financial modeling: the exact volatility calibration of the entire swaption matrix, and the…