Related papers: Financial option insurance
A discrete time probabilistic model, for optimal equity allocation and portfolio selection, is formulated so as to apply to (at least) reinsurance. In the context of a company with several portfolios (or subsidiaries), representing both…
This paper investigates the optimal consumption, investment, and life insurance/annuity decisions for a family in an inflationary economy under money illusion. The family can invest in a financial market that consists of nominal bonds,…
We study an optimal dividend problem for an insurer who simultaneously controls investment weights in a financial market, liability ratio in the insurance business, and dividend payout rate. The insurer seeks an optimal strategy to maximize…
We suggest that one individual holds multiple degrees of belief about an outcome, given the evidence. We then investigate the implications of such noisy probabilities for a buyer and a seller of binary options and find the odds agreed upon…
This paper considers an insurer with two collaborating business lines that must make three critical decisions: (1) dividend payout, (2) a combination of proportional and excess-of-loss reinsurance coverage, and (3) capital injection between…
We introduce a fairly general, recombining trinomial tree model in the natural world. Market-completeness is ensured by considering a market consisting of two risky assets, a riskless asset, and a European option. The two risky assets…
All people have to make risky decisions in everyday life. And we do not know how true they are. But is it possible to mathematically assess the correctness of our choice? This article discusses the model of decision making under risk on the…
An interesting analog circuit for simulating a signal with fluctuations having a probability density function with a power tail has recently been proposed and constructed. The exponent of the power law can be fixed by tuning an appropriate…
The basic principle of any version of insurance is the paradigm that exchanging risk by sharing it in a pool is beneficial for the participants. In case of independent risks with a finite mean this is the case for risk averse decision…
An investor with constant relative risk aversion and an infinite planning horizon trades a risky and a safe asset with constant investment opportunities, in the presence of small transaction costs and a binding exogenous portfolio…
Individual investors are now massively using online brokers to trade stocks with convenient interfaces and low fees, albeit losing the advice and personalization traditionally provided by full-service brokers. We frame the problem faced by…
Probability forecasts are intended to account for the uncertainties inherent in forecasting. It is suggested that from an end-user's point of view probability is not necessarily sufficient to reflect uncertainties that are not simply the…
Based on the analog between the stochastic dynamics and quantum harmonic oscillator, we propose a market force driving model to generalize the Black-Scholes model in finance market. We give new schemes of option pricing, in which we can…
The virtue of an American option is that it can be exercised at any time. This right is particularly valuable when there is model uncertainty. Yet almost all the extensive literature on American options assumes away model uncertainty. This…
We investigate the relation between the fair price for European-style vanilla options and the distribution of short-term returns on the underlying asset ignoring transaction and other costs. We compute the risk-neutral probability density…
We contrast Arbitrage Pricing Theory (APT), the theoretical basis for the development of financial instruments, with a dynamical picture of an interacting market, in a simple setting. The proliferation of financial instruments apparently…
Funding is a cost to trading desks that they see as an input. Current FVA-related literature reflects this by also taking funding costs as an input, usually constant, and always risk-neutral. However, this funding curve is the output from a…
A so called Zipf analysis portofolio management technique is introduced in order to comprehend the risk and returns. Two portofoios are built each from a well known financial index. The portofolio management is based on two approaches: one…
Conditional Asian options are recent market innovations, which offer cheaper and long-dated alternatives to regular Asian options. In contrast with payoffs from regular Asian options which are based on average asset prices, the payoffs from…
Insurance companies often include very long-term guarantees in participating life insurance products, which can turn out to be very valuable. Under a guaranteed annuity options (G.A.O), the insurer guarantees to convert a policyholder's…