Related papers: Option-based Equity Risk Premiums
Estimation methods for the L\'{e}vy density of a L\'{e}vy process are developed under mild qualitative assumptions. A classical model selection approach made up of two steps is studied. The first step consists in the selection of a good…
In this paper we develop a symbolic technique to obtain asymptotic expressions for ruin probabilities and discounted penalty functions in renewal insurance risk models when the premium income depends on the present surplus of the insurance…
We give a complete algorithm and source code for constructing what we refer to as heterotic risk models (for equities), which combine: i) granularity of an industry classification; ii) diagonality of the principal component factor…
We introduce a fairly general, recombining trinomial tree model in the natural world. Market-completeness is ensured by considering a market consisting of two risky assets, a riskless asset, and a European option. The two risky assets…
We propose a projection method to estimate risk-neutral moments from option prices. We derive a finite-sample bound implying that the projection estimator attains (up to a constant) the smallest pricing error within the span of traded…
A general method to construct recombinant tree approximations for stochastic volatility models is developed and applied to the Heston model for stock price dynamics. In this application, the resulting approximation is a four tuple Markov…
We analyze the limiting behavior of the risk premium associated with the Pareto optimal risk sharing contract in an infinitely expanding pool of risks under a general class of law-invariant risk measures encompassing rank-dependent utility…
This paper is concerned with learning decision makers' preferences using data on observed choices from a finite set of risky alternatives. We propose a discrete choice model with unobserved heterogeneity in consideration sets and in…
We investigate the forecasting ability of the most commonly used benchmarks in financial economics. We approach the usual caveats of probabilistic forecasts studies -small samples, limited models and non-holistic validations- by performing…
We study the continuous time portfolio optimization model on the market where the mean returns of individual securities or asset categories are linearly dependent on underlying economic factors. We introduce the functional $Q_\gamma$…
We present a systematic trading framework that forecasts short-horizon market risk, identifies its underlying drivers, and generates alpha using a hybrid machine learning ensemble built to trade on the resulting signal. The framework…
In this paper we develop an algorithm to calculate the prices and Greeks of barrier options in a hyper-exponential additive model with piecewise constant parameters. We obtain an explicit semi-analytical expression for the first-passage…
We develop a theory for pricing non-diversifiable mortality risk in an incomplete market. We do this by assuming that the company issuing a mortality-contingent claim requires compensation for this risk in the form of a pre-specified…
In this paper we develop rate--optimal estimation procedures in the problem of estimating the $L_p$--norm, $p\in (0, \infty)$ of a probability density from independent observations. The density is assumed to be defined on $R^d$, $d\geq 1$…
We provide an axiomatic approach to general premium principles in a probability-free setting that allows for Knightian uncertainty. Every premium principle is the sum of a risk measure, as a generalization of the expected value, and a…
In this paper we develop numerical pricing methodologies for European style Exchange Options written on a pair of correlated assets, in a market with finite liquidity. In contrast to the standard multi-asset Black-Scholes framework, trading…
A quadratic discrete time probabilistic model, for optimal portfolio selection in (re-)insurance is studied. For positive values of underwriting levels, the expected value of the accumulated result is optimized, under constraints on its…
Many insurance premium principles are defined and various estimation procedures introduced in the literature. In this paper, we focus on the estimation of the excess-of-loss reinsurance premium when the risks are randomly right-censored.…
American put options are among the most frequently traded single stock options, and their calibration is computationally challenging since no closed-form expression is available. Due to the higher flexibility in comparison to European…
Equity default-swaps pay the holder a fixed amount of money when the underlying spot level touches a (far-down) barrier during the life of the instrument. While most pricing models give reasonable results when the barrier lies within the…