Related papers: Repo convexity
A new directional derivative and a new subdifferential for set-valued convex functions are constructed, and a set-valued version of the so-called 'max-formula' is proven. The new concepts are used to characterize solutions of convex…
This paper formulates an utility indifference pricing model for investors trading in a discrete time financial market under non-dominated model uncertainty. The investors preferences are described by strictly increasing concave random…
We develop a generalization of the Black-Cox structural model of default risk. The extended model captures uncertainty related to firm's ability to avoid default even if company's liabilities momentarily exceeding its assets. Diffusion in a…
We develop a model to price inflation and interest rates derivatives using continuous-time dynamics that have some links with macroeconomic monetary DSGE models equipped with a Taylor rule: in particular, the reaction function of the…
We propose a constructive framework for the super-hedging problem of a European contingent claim under proportional transaction costs in discrete time. Our main contribution is an explicit recursive scheme that computes both the…
We focus on extending existing short-rate models, enabling control of the generated implied volatility while preserving analyticity. We achieve this goal by applying the Randomized Affine Diffusion (RAnD) method to the class of short-rate…
In this paper we study the pricing of exchange options under a dynamic described by stochastic correlation with random jumps. In particular, we consider a Ornstein-Uhlenbeck covariance model with Levy Background Noise Process driven by…
Asset prices contain information about the probability distribution of future states and the stochastic discounting of those states as used by investors. To better understand the challenge in distinguishing investors' beliefs from…
Motivated by pricing in ad exchange markets, we consider the problem of robust learning of reserve prices against strategic buyers in repeated contextual second-price auctions. Buyers' valuations for an item depend on the context that…
Reference prices have long been studied in applied economics and business research. One of the classic formulations of the reference price is in terms of an iterative function of past prices. There are a number of limitations of such a…
We study the Hull-White model for the term structure of interest rates in the presence of volatility uncertainty. The uncertainty about the volatility is represented by a set of beliefs, which naturally leads to a sublinear expectation and…
We present a new model for credit index derivatives, in the top-down approach. This model has a dynamic loss intensity process with volatility and jumps and can include counterparty risk. It handles CDS, CDO tranches, Nth-to-default and…
In this paper, we study the benefits of using polyharmonic splines and node layouts with smoothly varying density for developing robust and efficient radial basis function generated finite difference (RBF-FD) methods for pricing of…
Induction benefits from useful priors. Penalized regression approaches, like ridge regression, shrink weights toward zero but zero association is usually not a sensible prior. Inspired by simple and robust decision heuristics humans use, we…
This paper considers the pricing of long-term options on assets such as housing, where either government intervention or the economic nature of the asset is assumed to limit large falls in prices. The observed asset price is modelled by a…
We propose an elementary model to price European physical delivery swaptions in multicurve setting with a simple exact closed formula. The proposed model is very parsimonious: it is a three-parameter multicurve extension of the…
Financial contracts with options that allow the holder to extend the contract maturity by paying an additional fixed amount found many applications in finance. Closed-form solutions for the price of these options have appeared in the…
The current research on credit risk is primarily focused on modeling default probabilities. Recovery rates are often treated as an afterthought; they are modeled independently, in many cases they are even assumed constant. This is despite…
A multi-dimensional extension of the structural default model with firms' values driven by diffusion processes with Marshall-Olkin-inspired correlation structure is presented. Semi-analytical methods for solving the forward calibration…
A power market with non-convexities may not have an equilibrium price for power that provides economic stability of the centralized dispatch outcome. In this case, the market players are entitled to receive the uplift payments that…