Related papers: Pricing of debt and equity in a financial network …
Much research in systemic risk is focused on default contagion. While this demands an understanding of valuation, fewer articles specifically deal with the existence, the uniqueness, and the computation of equilibrium prices in structural…
Regulatory and contractual constraints on individual exposures are standard in insurance and reinsurance markets, but a poorly designed constraint can distort the economic incentives of risk-averse agents. In the unconstrained problem, the…
This paper considers the pricing of equity-linked life insurance contracts with death and survival benefits in a general model with multiple stochastic risk factors: interest rate, equity, volatility, unsystematic and systematic mortality.…
We introduce a general model for the balance-sheet consistent valuation of interbank claims within an interconnected financial system. Our model represents an extension of clearing models of interdependent liabilities to account for the…
We study financial systems from a game-theoretic standpoint. A financial system is represented by a network, where nodes correspond to firms, and directed labeled edges correspond to debt contracts between them. The existence of cycles in…
In the accompanied paper [14], a delayed nonlinear model for pricing corporate liabilities was developed. Using self-financed strategy and duplication we were able to derive two Random Partial Differential Equations (RPDEs) describing the…
We generalize Merton's asset valuation approach to systems of multiple financial firms where cross-ownership of equities and liabilities is present. The liabilities, which may include debts and derivatives, can be of differing seniority. We…
We study optimal monopoly pricing over consumer networks governed by general nonlinear utilities. In our framework, a consumer's utility is jointly determined by an individualized price and the consumption choices of their peers, propagated…
We propose a model which can be jointly calibrated to the corporate bond term structure and equity option volatility surface of the same company. Our purpose is to obtain explicit bond and equity option pricing formulas that can be…
The emerging edge computing paradigm promises to deliver superior user experience and enable a wide range of Internet of Things (IoT) applications. In this work, we propose a new market-based framework for efficiently allocating resources…
It is well-known that an $\mathbb{R}$-valued random vector $(X_1, X_2, \cdots, X_n)$ is comonotonic if and only if $(X_1, X_2, \cdots, X_n)$ and $(Q_1(U), Q_2(U),\cdots, Q_n(U))$ coincide \emph{in distribution}, for \emph{any} random…
In incomplete financial markets, pricing and hedging European options lack a unique no-arbitrage solution due to unhedgeable risks. This paper introduces a constrained deep learning approach to determine option prices and hedging strategies…
Reconstructing patterns of interconnections from partial information is one of the most important issues in the statistical physics of complex networks. A paramount example is provided by financial networks. In fact, the spreading and…
In a stochastic volatility framework, we find a general pricing equation for the class of payoffs depending on the terminal value of a market asset and its final quadratic variation. This allows a pricing tool for European-style claims…
We propose a unifying framework for the pricing of debt securities under general time-inhomogeneous short-rate diffusion processes. The pricing of bonds, bond options, callable/putable bonds, and convertible bonds (CBs) is covered. Using…
We explore credit risk pricing by modeling equity as a call option and debt as the difference between the firm's asset value and a put option, following the structural framework of the Merton model. Our approach proceeds in two stages:…
How do inter-organizational networks emerge? Accounting for interdependence among ties while studying tie formation is one of the key challenges in this area of research. We address this challenge using an equilibrium framework where firms'…
After the beginning of the credit and liquidity crisis, financial institutions have been considering creating a convertible-bond type contract focusing on Capital. Under the terms of this contract, a bond is converted into equity if the…
The paper studies a system of Hamilton-Jacobi equations, arising from a stochastic optimal debt management problem in an infinite time horizon with exponential discount, modeled as a noncooperative interaction between a borrower and a pool…
Evaluation of systemic risk in networks of financial institutions in general requires information of inter-institution financial exposures. In the framework of Debt Rank algorithm, we introduce an approximate method of systemic risk…