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The credit crisis and the ongoing European sovereign debt crisis have highlighted the native form of credit risk, namely the counterparty risk. The related Credit Valuation Adjustment, (CVA), Debt Valuation Adjustment (DVA), Liquidity…
In this paper we study the problem of optimal dividend payment strategy which maximizes the expected discounted sum of dividends to a multidimensional set up of n associated insurance companies where the surplus process follows an…
To make medium- and long-term insurance products attractive, it is essential to enable participation in stock market returns. However, to eliminate downside risk, guarantees must be included, which naturally leads to the challenge of…
An uncollateralized swap hedged back-to-back by a CCP swap is used to introduce FVA. The open IR01 of FVA, however, is a sure sign of risk not being fully hedged, a theoretical no-arbitrage pricing concern, and a bait to lure market risk…
Dynamic hedging is the practice of periodically transacting financial instruments to offset the risk caused by an investment or a liability. Dynamic hedging optimization can be framed as a sequential decision problem; thus, Reinforcement…
A common assumption in financial engineering is that the market price for any derivative coincides with an objectively defined risk-neutral price - a plausible assumption only if traders collectively possess objective knowledge about the…
Using tools from spectral analysis, singular and regular perturbation theory, we develop a systematic method for analytically computing the approximate price of a derivative-asset. The payoff of the derivative-asset may be path-dependent.…
How does one compile derivatives of tensor programs, such that the resulting code is purely functional (hence easier to optimize and parallelize) and provably efficient relative to the original program? We show that naively differentiating…
We develop a finite horizon continuous time market model, where risk averse investors maximize utility from terminal wealth by dynamically investing in a risk-free money market account, a stock written on a default-free dividend process,…
We investigate models of the life annuity insurance when the company invests its reserve into a risky asset with price following a geometric Brownian motion. Our main result is an exact asymptotic of the ruin probabilities for the case of…
This paper introduces a novel methodology for the pricing and management of share buyback contracts, overcoming the limitations of traditional optimal control methods, which frequently encounter difficulties with high-dimensional state…
This article introduces a new mathematical concept of illiquidity that goes hand in hand with credit risk. The concept is not volume- but constraint-based, i.e., certain assets cannot be shorted and are ineligible as num\'eraire. If those…
In this paper we present a theoretical framework for determining dynamic ask and bid prices of derivatives using the theory of dynamic coherent acceptability indices in discrete time. We prove a version of the First Fundamental Theorem of…
We propose a model in which dividend payments occur at regular, deterministic intervals in an otherwise continuous model. This contrasts traditional models where either the payment of continuous dividends is controlled or the dynamics are…
We study a reinsurer who faces multiple sources of model uncertainty. The reinsurer offers contracts to $n$ insurers whose claims follow compound Poisson processes representing both idiosyncratic and systemic sources of loss. As the…
Standard policy gradients weight each sampled action by advantage alone, regardless of how likely that action was under the current policy. This creates two pathologies: within a single decision context (e.g. one image or prompt), a rare…
In this paper we consider an optimal investment and reinsurance problem with partially unknown model parameters which are allowed to be learned. The model includes multiple business lines and dependence between them. The aim is to maximize…
Portfolio optimization methods suffer from a catalogue of known problems, mainly due to the facts that pair correlations of asset returns are unstable, and that extremal risk measures such as maximum drawdown are difficult to predict due to…
In this paper, we have studied the pricing of a continuously collateralized CDS. We have made use of the "survival measure" to derive the pricing formula in a straightforward way. As a result, we have found that there exists irremovable…
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…