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The importance of adequately modeling credit risk has once again been highlighted in the recent financial crisis. Defaults tend to cluster around times of economic stress due to poor macro-economic conditions, {\em but also} by directly…
Financial networks raise a significant computational challenge in identifying insolvent firms and evaluating their exposure to systemic risk. This task, known as the clearing problem, is computationally tractable when dealing with simple…
This paper considers an insurer with two collaborating business lines that faces three critical decisions: (1) dividend payout, (2) reinsurance coverage, and (3) capital injection between the lines, in the presence of model uncertainty. The…
This paper studies the dividend and capital injection problem under a diffusion risk model with general discount functions. A proportional cost is imposed when injecting capitals. For exponential discounting as time-consistent benchmark, we…
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…
Auctions in which agents' payoffs are random variables have received increased attention in recent years. In particular, recent work in algorithmic mechanism design has produced mechanisms employing internal randomization, partly in…
We study the pricing problem for corporate defaultable bond from the viewpoint of the investors outside the firm that could not exactly know about the information of the firm. We consider the problem for pricing of corporate defaultable…
Distortion (Denneberg 1990) is a well known premium calculation principle for insurance contracts. In this paper, we study sensitivity properties of distortion functionals w.r.t. the assumptions for risk aversion as well as robustness…
This theoretical model contains concept, equations, and graphical results for venture banking. A system of 27 equations describes the behavior of the venture-bank and underwriter system allowing phase-space type graphs that show where…
We consider the problem of designing prices for public transport where payment enforcing is done through random inspection of passengers' tickets as opposed to physically blocking their access. Passengers are fully strategic such that they…
We consider active learning under incentive compatibility constraints. The main application of our results is to economic experiments, in which a learner seeks to infer the parameters of a subject's preferences: for example their attitudes…
We point out some major drawbacks in random trading market models and propose a realistic modification which overcomes such drawbacks through `sensible trading'. We apply such trading policy in different situations: a) Agents with zero…
Groups of enterprises can serve as guarantees for one another and form complex networks when obtaining loans from commercial banks. During economic slowdowns, corporate default may spread like a virus and lead to large-scale defaults or…
This paper develops a continuous-time filtering framework for estimating a hazard rate subject to an unobservable change-point. This framework naturally arises in both financial and insurance applications, where the default intensity of a…
The claim arrival process to an insurance company is modeled by a compound Poisson process whose intensity and/or jump size distribution changes at an unobservable time with a known distribution. It is in the insurance company's interest to…
In the literature, insurance and reinsurance pricing is typically determined by a premium principle, characterized by a risk measure that reflects the policy seller's risk attitude. Building on the work of Meyers (1980) and Chen et al.…
This paper considers the ruin problem with random premiums, whose densities have rational Laplace transforms, and investments in a risky asset whose price follows a geometric Brownian motion. The asymptotic behavior of the ruin probability…
In this paper we consider dividend problem for an insurance company whose risk evolves as a spectrally negative L\'{e}vy process (in the absence of dividend payments) when Parisian delay is applied. The objective function is given by the…
This paper highlights the role of risk neutral investors in generating endogenous bubbles in derivatives markets. We find that a market for derivatives, which has all the features of a perfect market except completeness and has some risk…
The dynamic hedging theory only makes sense in the setup of one given model, whereas the practice of dynamic hedging is just the opposite, with models fleeing after the data through daily recalibration. This is quite of a quantitative…