Related papers: Financial option insurance
A new financial instrument (a new kind of a loan) is introduced. The loan-stock instrument (LSI) combines fixed rate instruments (loans, etc.) with other financial instruments that have higher volatilities and returns (stocks, mutual funds,…
Measuring beliefs about natural disasters is challenging. Deep out-of-the-money options allow investors to hedge at a range of strikes and time horizons, thus the 3-dimensional surface of firm-level option prices provides information on (i)…
Possibilistic risk theory starts from the hypothesis that risk is modelled by fuzzy numbers. In particular, in a possibilistic portfolio choice problem, the return of a risky asset will be a fuzzy number. The expected utility operators have…
The frequent occurrence of natural disasters has posed significant challenges to society, necessitating the urgent development of effective risk management strategies. From the early informal community-based risk sharing mechanisms to…
The main purpose of this work is the derivation of a functional partial differential equation (FPDE) for the calculations of equity-linked insurance policies, where the payment stream may depend on the whole past history of the financial…
The financial sector is anticipated to be one of the first industries to benefit from the increased computational power of quantum computers, in areas such as portfolio optimisation and risk management to financial derivative pricing.…
Managing a portfolio to a risk model can tilt the portfolio toward weaknesses of the model. As a result, the optimized portfolio acquires downside exposure to uncertainty in the model itself, what we call "second order risk." We propose a…
Financial and gambling markets are ostensibly similar and hence strategies from one could potentially be applied to the other. Financial markets have been extensively studied, resulting in numerous theorems and models, while gambling…
Option pricing is an integral part of modern financial risk management. The well-known Black and Scholes (1973) formula is commonly used for this purpose. This paper is an attempt to extend their work to a situation in which the…
In this paper, we address one of the main puzzles in finance observed in the stock market by proponents of behavioral finance: the stock predictability puzzle. We offer a statistical model within the context of rational finance which can be…
We use the theory of cooperative games for the design of fair insurance contracts. An insurance contract needs to specify the premium to be paid and a possible participation in the benefit (or surplus) of the company. It results from the…
Risk diversification is the basis of insurance and investment. It is thus crucial to study the effects that could limit it. One of them is the existence of systemic risk that affects all the policies at the same time. We introduce here a…
In this note, we develop stock option price approximations for a model which takes both the risk o default and the stochastic volatility into account. We also let the intensity of defaults be influenced by the volatility. We show that it…
We derive behavioral finance option pricing formulas consistent with the rational dynamic asset pricing theory. In the existing behavioral finance option pricing formulas, the price process of the representative agent is not a…
This work focuses on the dynamic hedging of financial derivatives, where a reinforcement learning algorithm is designed to minimize the variance of the delta hedging process. In contrast to previous research in this area, we apply…
Portfolio diversification is a cornerstone of modern finance, while risk aversion is central to decision theory; both concepts are long-standing and foundational. We investigate their connections by studying how different forms of…
Financial derivatives have often been criticized as casino-style betting instruments. It turns out that many naive ways of making them are indeed equivalent to gambling. Fortunately, this inadvertent effect can be understood and prevented.…
A classical portfolio theory deals with finding the optimal proportion in which an agent invests a wealth in a risk-free asset and a probabilistic risky asset. Formulating and solving the problem depend on how the risk is represented and…
As insurers increasingly behave like financial intermediaries and actively participate in capital markets, understanding the dependence structure between insurance and financial risks becomes crucial for insurers' operations. This paper…
The instability of the financial system as experienced in recent years and in previous periods is often linked to credit defaults, i.e., to the failure of obligors to make promised payments. Given the large number of credit contracts, this…