Related papers: Evaluation of equity-based debt obligations
Our goal here is to discuss the pricing problem of European and American options in discrete time using elementary calculus so as to be an easy reference for first year undergraduate students. Using the binomial model we compute the fair…
Portfolio management problems are often divided into two types: active and passive, where the objective is to outperform and track a preselected benchmark, respectively. Here, we formulate and solve a dynamic asset allocation problem that…
The present paper is devoted to the study of diagonally quadratic backward stochastic differential equation with oblique reflection. Using a penalization approach, we show the existence fo a solution by providing some delicated a priori…
The paper studies derivative asset analysis in structural credit risk models where the asset value of the firm is not fully observable. It is shown that in order to compute the price dynamics of traded securities one needs to solve a…
We provide analytical pricing formula of corporate defaultable bond with both expected and unexpected default in the case with stochastic default intensity. In the case with constant short rate and exogenous default recovery using PDE…
This paper introduces a dynamic change of measure approach for computing the analytical solutions of expected future prices (and therefore, expected returns) of contingent claims over a finite horizon. The new approach constructs hybrid…
We study risk-sharing economies where heterogenous agents trade subject to quadratic transaction costs. The corresponding equilibrium asset prices and trading strategies are characterised by a system of nonlinear, fully-coupled…
In this paper, we consider dynamic risk measures induced by backward stochastic differential equations (BSDEs). We discuss different examples that come up in the literature, including the entropic risk measure and the risk measure arising…
Scalar dynamic risk measures for univariate positions in continuous time are commonly represented as backward stochastic differential equations. In the multivariate setting, dynamic risk measures have been defined and studied as families of…
We propose a pseudo-market solution to resource allocation problems subject to constraints. Our treatment of constraints is general: including bihierarchical constraints due to considerations of diversity in school choice, or scheduling in…
The Equation Problem in finitely presented groups asks if there exists an algorithm which determines in finite amount of time whether any given equation system has a solution or not. We show that the Equation Problem in central extensions…
In this paper we derive an effective equation for derivative pricing which accounts for the presence of virtual arbitrage opportunities and their elimination by the market. We model the arbitrage return by a stochastic process and find an…
We study perpetual American option pricing problems in an extension of the Black-Merton-Scholes model in which the dividend and volatility rates of the underlying risky asset depend on the running values of its maximum and maximum drawdown.…
Default risk significantly affects the corporate policies of a firm. We develop a model in which a limited liability entity subject to Poisson default shock jointly sets its dividend policy and capital structure to maximize the expected…
This study delves into the intricate realm of risk evaluation within the domain of specific financial derivatives, notably options. Unlike other financial instruments, like bonds, options are susceptible to broader risks. A distinctive…
This work is focused on the solvability of initial-boundary value problems for degenerate parabolic partial differential equations that arise in the pricing of Asian options, and on the investigation of differential and certain qualitative…
This study deals with the problem of pricing compound options when the underlying asset follows a mixed fractional Brownian motion with jumps. An analytic formula for compound options is derived under the risk neutral measure. Then, these…
We provide a unified approach to find equilibrium solutions for time-inconsistent problems with distribution dependent rewards, which are important to the study of behavioral finance and economics. Our approach is based on {\it equilibrium…
Implementing smart contracts to automate the performance of high-value over-the-counter (OTC) financial derivatives is a formidable challenge. Due to the regulatory framework and the scale of financial risk if a contract were to go wrong,…
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:…