Related papers: Evaluation of equity-based debt obligations
We consider a two-factor model for the valuation of a non callable defaultable bond which pays coupons at certain given dates. The model under consideration is the Jump to Default Constant Elasticity of Variance (JDCEV) model. The JDCEV…
The instability of the financial system as experienced in recent years and in previous periods is often linked to credit defaults, i.e., to the failure of obligors to make promised payments. Given the large number of credit contracts, this…
We address the liquidation problem arising from the credit risk management in decentralised finance (DeFi) by formulating it as an ergodic optimal control problem. In decentralised derivatives exchanges, liquidation is triggered whenever…
We consider stochastic impulse control problems when the impulses cost functions are arbitrary. We use the dynamic programming principle and viscosity solutions approach to show that the value function is a unique viscosity solution for the…
In mathematical finance, many derivatives from markets with frictions can be formulated as optimal control problems in the HJB framework. Analytical optimal control can result in highly nonlinear PDEs, which might yield unstable numerical…
An efficient method to price bonds with optional sinking feature is presented. Such instruments equip their issuer with the option (but not the obligation) to redeem parts of the notional prior to maturity, therefore the future cash flows…
We consider the problem of maximizing expected utility for a power investor who can allocate his wealth in a stock, a defaultable security, and a money market account. The dynamics of these security prices are governed by geometric Brownian…
The purpose of this work is to explore the role that arbitrage opportunities play in pricing financial derivatives. We use a non-equilibrium model to set up a stochastic portfolio, and for the random arbitrage return, we choose a stationary…
The problem of robust utility maximization in an incomplete market with volatility uncertainty is considered, in the sense that the volatility of the market is only assumed to lie between two given bounds. The set of all possible models…
Load-serving entities which procure electricity from the wholesale electricity market to service end-users face significant quantity and price risks due to the volatile nature of electricity demand and quasi-fixed residential tariffs at…
The aim of this short note is to present a solution to the discrete time exponential utility maximization problem in a case where the underlying asset has a multivariate normal distribution. In addition to the usual setting considered in…
We propose an option approach for pricing bond illiquidity that is reminiscent of the celebrated work of Longstaff (1995) on the non-marketability of some non-dividend-paying shares in IPOs. This approach describes a quite common situation…
We study the optimal investment stopping problem in both continuous and discrete case, where the investor needs to choose the optimal trading strategy and optimal stopping time concurrently to maximize the expected utility of terminal…
We address the modelling of commodities that are supposed to have positive price but, on account of a possible failure in the physical delivery mechanism, may turn out not to. This is done by explicitly incorporating a `delivery liability'…
The paper studies the First Order BSPDEs (Backward Stochastic Partial Differential Equations) suggested earlier for a case of multidimensional state domain with a boundary. These equations represent analogs of Hamilton-Jacobi-Bellman…
We address the Merton problem of maximizing the expected utility of terminal wealth using techniques from variational analysis. Under a general continuous semimartingale market model with stochastic parameters, we obtain a characterization…
In this paper we study ergodic backward stochastic differential equations (EBSDEs) dropping the strong dissipativity assumption needed in the previous work. In other words we do not need to require the uniform exponential decay of the…
We model the term structure of the forward default intensity and the default density by using L\'evy random fields, which allow us to consider the credit derivatives with an after-default recovery payment. As applications, we study the…
In this article, we propose a new form of DAO governance that uses a sequential auction mechanism to overcome entrenched control issues that have emerged for DAOs by creating a regime of temporary contestable control. The mechanism avoids…
Many important collective decision-making problems can be seen as multi-agent versions of discrete optimisation problems. Participatory budgeting, for instance, is the collective version of the knapsack problem; other examples include…