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We present a dialogue on Counterparty Credit Risk touching on Credit Value at Risk (Credit VaR), Potential Future Exposure (PFE), Expected Exposure (EE), Expected Positive Exposure (EPE), Credit Valuation Adjustment (CVA), Debit Valuation…

In this paper, we study an optimal excess-of-loss reinsurance and investment problem for an insurer in defaultable market. The insurer can buy reinsurance and invest in the following securities: a bank account, a risky asset with stochastic…

Default risk significantly affects the corporate policies of a firm. We develop a model in which a limited liability entity subject to Poisson default shock jointly sets its dividend policy and capital structure to maximize the expected…

In this paper we present a rigorously motivated pricing equation for derivatives, including general cash collateralization schemes, which is consistent with quoted market bond prices. Traditionally, there have been differences in how…

Excessive leverage, i.e. the abuse of debt financing, is considered one of the primary factors in the default of financial institutions. Systemic risk results from correlations between individual default probabilities that cannot be…

Expected Shortfall (ES) has been widely accepted as a risk measure that is conceptually superior to Value-at-Risk (VaR). At the same time, however, it has been criticised for issues relating to backtesting. In particular, ES has been found…

Reliability and availability analysis are essential in dependable critical embedded systems. The classical implementation of dependability for an embedded system relies on merging both fundamental structures with the required dependability…

We introduce an arbitrage-free framework for robust valuation adjustments. An investor trades a credit default swap portfolio with a risky counterparty, and hedges credit risk by taking a position in defaultable bonds. The investor does not…

Default risk calculus plays a crucial role in portfolio optimization when the risky asset is under threat of bankruptcy. However, traditional stochastic control techniques are not applicable in this scenario, and additional assumptions are…

This paper studies the bank dynamic decision problem in the intermediate time step for a discrete-time setup. We have considered a three-time-step model. Initially, the banks raise money through debt and equity and invest in different types…

This paper fundamentally reformulates economic and financial theory to include electronic currencies. The valuation of the electronic currencies will be based on macroeconomic theory and the fundamental equation of monetary policy, not the…

Dynamic Discrete Choice Models (DDCMs) are important in the structural estimation literature. Since the structural errors are practically always continuous and unbounded in nature, researchers often use the expected value function. The idea…

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…

The growing amount of intermittent renewables in power generation creates challenges for real-time matching of supply and demand in the power grid. Emerging ancillary power markets provide new incentives to consumers (e.g., electrical…

A variance swap is a derivative with a path-dependent payoff which allows investors to take positions on the future variability of an asset. In the idealised setting of a continuously monitored variance swap written on an asset with…

Decentralised exchanges (DEXs) have transformed trading by enabling trustless, permissionless transactions, yet they face significant challenges such as impermanent loss and slippage, which undermine profitability for liquidity providers…

This paper presents analytical solutions to the problem of how to calculate sensible VaR (Value-at-Risk) and ES (Expected Shortfall) contributions in the CreditRisk+ methodology. Via the ES contributions, ES itself can be exactly computed…

Owing to the potential higher energy supply efficiency and operation flexibility, integrated energy system (IES), which usually includes electric power, gas and heating/cooling systems, is considered as one of the primary forms of energy…

We discuss risk measures representing the minimum amount of capital a financial institution needs to raise and invest in a pre-specified eligible asset to ensure it is adequately capitalized. Most of the literature has focused on…

This paper presents an innovative approach to Extreme Value Analysis (EVA) by introducing the Extreme Value Dynamic Benchmarking Method (EVDBM). EVDBM integrates extreme value theory to detect extreme events and is coupled with the novel…