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When trading incurs proportional costs, leverage can scale an asset's return only up to a maximum multiple, which is sensitive to its volatility and liquidity. In a model with one safe and one risky asset, with constant investment…
Short sales are regarded as negative purchases in textbook asset pricing theory. In reality, however, the symmetry between purchases and short sales is broken by a variety of costs and risks peculiar to the latter. We formulate an optimal…
Exploring measures to improve financial networks and mitigate systemic risks is an ongoing challenge. We study claims trading, a notion defined in Chapter 11 of the U.S. Bankruptcy Code. For a bank $v$ in distress and a trading partner $w$,…
We introduce a simple and tractable methodology for estimating semiparametric conditional latent factor models. Our approach disentangles the roles of characteristics in capturing factor betas of asset returns from ``alpha.'' We construct…
We consider a financial market where stocks are available for dynamic trading, and European and American options are available for static trading (semi-static trading strategies). We assume that the American options are infinitely…
Return-risk models are the two pillars of modern portfolio theory, which are widely used to make decisions in choosing the loan portfolio of a bank. Banks and other financial institutions are subjected to limited liability protection.…
We study arbitrage opportunities, market viability and utility maximization in market models with an insider. Assuming that an economic agent possesses from the beginning an additional information in the form of a random variable G, which…
Transaction costs play a critical role in asset allocation and consumption strategies in portfolio management. We apply the methods of dynamic programming and singular perturbation expansion to derive the closed-form leading solutions to…
We design a system for risk-analyzing and pricing portfolios of non-performing consumer credit loans. The rapid development of credit lending business for consumers heightens the need for trading portfolios formed by overdue loans as a…
We revisit the recently introduced concept of return risk measures (RRMs) and extend it by incorporating risk management via multiple so-called eligible assets. The resulting new class of risk measures, termed multi-asset return risk…
In this paper, we study an optimal reinsurance-investment problem in a risk model with two dependent classes of insurance business, where the two claim number processes are correlated through a common shock component. We assume that the…
Contrary to the claims made by several authors, a financial market model in which the price of a risky security follows a reflected geometric Brownian motion is not arbitrage-free. In fact, such models violate even the weakest no-arbitrage…
We introduce a new stochastic duration model for transaction times in asset markets. We argue that widely accepted rules for aggregating seemingly related trades mislead inference pertaining to durations between unrelated trades: while any…
Regulatory requirements dictate that financial institutions must calculate risk capital (funds that must be retained to cover future losses) at least annually. Procedures for doing this have been well-established for many years, but recent…
We study a continuous-time expected utility maximization problem in which the investor at maturity receives the value of a contingent claim in addition to the investment payoff from the financial market. The investor knows nothing about the…
We consider a liquidation problem in which a risk-averse trader tries to liquidate a fixed quantity of an asset in the presence of market impact and random price fluctuations. The trader encounters a trade-off between the transaction costs…
We model a nonlinear price curve quoted in a market as the utility indifference curve of a representative liquidity supplier. As the utility function we adopt a g-expectation. In contrast to the standard framework of financial engineering,…
This paper investigates market-consistent valuation of insurance liabilities in the context of, for instance, Solvency II and to some extent IFRS 4. We propose an explicit and consistent framework for the valuation of insurance liabilities…
We introduce an equilibrium asset pricing model, which we build on the relationship between a novel risk measure, the Expected Downside Risk (EDR) and the expected return. On the one hand, our proposed risk measure uses a nonparametric…
In recent decades, companies have frequently adopted share repurchase programs to return capital to shareholders or for other strategic purposes, instructing investment banks to rapidly buy back shares on their behalf. When the executing…