Related papers: Model Risk in Real Option Valuation
This paper has been withdrawn by the authors. We present a framework for sequential decision making in problems described by graphical models. The setting is given by dependent discrete random variables with associated costs or revenues. In…
The field of portfolio selection is an active research topic, which combines elements and methodologies from various fields, such as optimization, decision analysis, risk management, data science, forecasting, etc. The modeling and…
We propose a method to assess the intrinsic risk carried by a financial position $X$ when the agent faces uncertainty about the pricing rule assigning its present value. Our approach is inspired by a new interpretation of the quasiconvex…
In this work we study the individual strategies carried out by agents undergoing transactions in wealth exchange models. We analyze the role of risk propensity in the behavior of the agents and find a critical risk, such that agents with…
We study portfolio selection in a complete continuous-time market where the preference is dictated by the rank-dependent utility. As such a model is inherently time inconsistent due to the underlying probability weighting, we study the…
Humans and animals have the ability to reason and make predictions about different courses of action at many time scales. In reinforcement learning, option models (Sutton, Precup \& Singh, 1999; Precup, 2000) provide the framework for this…
The classical discrete time model of proportional transaction costs relies on the assumption that a feasible portfolio process has solvent increments at each step. We extend this setting in two directions, allowing for convex transaction…
We introduce a new tool for predicting the evolution of an option for the cases where at some specific time, there is a high-degree of uncertainty for identifying its price. We work over the special case where we can predict the evolution…
Pricing of high-dimensional options is a deep problem of the Theoretical Financial Mathematics. In this article we present a new class of L\'{e}vy driven models of stock markets. In our opinion, any market model should be based on a…
In this paper we study the quality of model-free valuation approaches for financial derivatives by systematically evaluating the difference between model-free super-hedging strategies and the realized payoff of financial derivatives using…
We estimate generic statistical properties of a structural credit risk model by considering an ensemble of correlation matrices. This ensemble is set up by Random Matrix Theory. We demonstrate analytically that the presence of correlations…
This work proposes a way to align statistical modeling with decision making. We provide a method that propagates the uncertainty in predictive modeling to the uncertainty in operational cost, where operational cost is the amount spent by…
We study convexity and monotonicity properties of option prices in a model with jumps using the fact that these prices satisfy certain parabolic integro-differential equations. Conditions are provided under which preservation of convexity…
American options are financial instruments that can be exercised at any time before expiration. In this paper we study the problem of pricing this kind of derivatives within a framework in which some of the properties --volatility and…
This paper introduces a relative model risk measure of a product priced with a given model, with respect to another reference model for which the market is assumed to be driven. This measure allows comparing products valued with different…
In this contribution we consider the overall risk given as the sum of random subrisks $\mathbf{X}_j$ in the context of value-at-risk (VaR) based risk calculations. If we assume that the undertaking knows the parametric distribution family…
Model averaging techniques in the actuarial literature aim to forecast future longevity appropriately by combining forecasts derived from various models. This approach often yields more accurate predictions than those generated by a single…
In this paper, we are concerned with the optimization of a dynamic investment portfolio when the securities which follow a multivariate Merton model with dependent jumps are periodically invested and proceed by approximating the…
The paper discusses a path-wise approach to stock price modelling.
This research presents a novel approach to predicting option movements by analyzing residual transactions, which are trades that deviate from standard hedging activities. Unlike traditional methods that primarily focus on open interest and…