Related papers: The perverse incentive for insurance instruments t…
This article focuses on the mathematical problem of existence and uniqueness of BSDE with a random terminal time which is a general random variable but not a stopping time, as it has been usually the case in the previous literature of BSDE…
We study reward design strategies for incentivizing a reinforcement learning agent to adopt a policy from a set of admissible policies. The goal of the reward designer is to modify the underlying reward function cost-efficiently while…
This study models the monopoly pricing of weather index insurance as a Bowley-type sequential game involving a profit-maximizing insurer (leader) and a farmer (follower). The farmer chooses an insurance payoff to minimize a convex…
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…
We study dynamic hedging of counterparty risk for a portfolio of credit derivatives. Our empirically driven credit model consists of interacting default intensities which ramp up and then decay after the occurrence of credit events. Using…
A derivative is a financial security whose value is a function of underlying traded assets and market outcomes. Pricing a financial derivative involves setting up a market model, finding a martingale (``fair game") probability measure for…
We propose a model for an insurance loss index and the claims process of a single insurance company holding a fraction of the total number of contracts that captures both ordinary losses and losses due to catastrophes. In this model we…
In this paper, we consider the problem of maximizing the expected discounted utility of dividend payments for an insurance company that controls risk exposure by purchasing proportional reinsurance. We assume the preference of the insurer…
Banks in the interbank network can not assess the true risks associated with lending to other banks in the network, unless they have full information on the riskiness of all the other banks. These risks can be estimated by using network…
We study the optimal bailout dividend problem with transaction costs for an insurance company, where shareholder payouts align with the arrival times of an independent Poisson process. In this scenario, the underlying risk model follows a…
Increased penetration of wind energy will make electricity market prices more volatile. As a result, market participants will bear increased financial risks, which impact investment decisions and in turn, makes it harder to achieve…
We propose a probabilistic framework for pricing derivatives, which acknowledges that information and beliefs are subjective. Market prices can be translated into implied probabilities. In particular, futures imply returns for these implied…
Contrastive divergence (CD) learning is a classical method for fitting unnormalized statistical models to data samples. Despite its wide-spread use, the convergence properties of this algorithm are still not well understood. The main source…
We formulate a dynamic reinsurance problem in which the insurer seeks to control the terminal distribution of its surplus while minimizing the L2-norm of the ceded risk. Using techniques from martingale optimal transport, we show that,…
Variable annuities, as a class of retirement income products, allow equity market exposure for a policyholder's retirement fund with electable additional guarantees to limit the downside risk of the market. Management fees and guarantee…
This paper studies optimal insurance design under asymmetric information in a Stackelberg framework, where a monopolistic insurer faces uncertainty about both the insured's risk attitude, captured by a risk-aversion parameter, and the…
This paper investigates optimal withdrawal strategies and behavior of policyholders in a variable annuity (VA) contract with a guaranteed minimum withdrawal benefit (GMWB) rider incorporating taxation and a ratchet mechanism for enhancing…
Misaligned incentives in secure software development have long been the focus of research in the economics of security. Product liability, a powerful legal framework in other industries, has been largely ineffective for software products…
In this paper we study the pricing and hedging of nonreplicable contingent claims, such as long-term insurance contracts like variable annuities. Our approach is based on the benchmark-neutral pricing framework of Platen (2024), which…
This work studies the dynamic risk management of the risk-neutral value of the potential credit losses on a portfolio of derivatives. Sensitivities-based hedging of such liability is sub-optimal because of bid-ask costs, pricing models…