Related papers: Option-based Equity Risk Premiums
The existence of the pricing kernel is shown to imply the existence of an ambient information process that generates market filtration. This information process consists of a signal component concerning the value of the random variable X…
Observing prices of European put and call options, we calibrate exponential L\'evy models nonparametrically. We discuss the efficient implementation of the spectral estimation procedures for L\'evy models of finite jump activity as well as…
We study dynamic hedging of counterparty risk for a portfolio of credit derivatives. Our empirically driven credit model consists of interacting default intensities which ramp up and then decay after the occurrence of credit events. Using…
We introduce a new model for pricing corporate bonds, which is a modification of the classical model of Merton. In this new model, we drop the liquidity assumption of the firm's asset value process, and assume that there is a liquidly…
Evaluating accessible conformational space is computationally expensive and thermal motions are partly neglected in computer models of molecular interactions. This produces error into the estimates of binding strength. We introduce a method…
In this paper I develop a new computational method for pricing path dependent options. Using the path integral representation of the option price, I show that in general it is possible to perform analytically a partial averaging over the…
"What are the origins of risks?" and "How material are they?" -- these are the two most fundamental questions of any risk analysis. Quantitative Structuring -- a technology for building financial products -- provides economically meaningful…
Opportunities for stochastic arbitrage in an options market arise when it is possible to construct a portfolio of options which provides a positive option premium and which, when combined with a direct investment in the underlying asset,…
We propose a method to assess the intrinsic risk carried by a financial position $X$ when the agent faces uncertainty about the pricing rule assigning its present value. Our approach is inspired by a new interpretation of the quasiconvex…
The standard asset pricing models (the CCAPM and the Epstein-Zin non-expected utility model) counterintuitively predict that equilibrium asset prices can rise if the representative agent's risk aversion increases. If the income effect,…
A numerical method is proposed to evaluate the survival function of a compound distribution and the stop-loss premiums associated with a non-proportional global reinsurance treaty. The method relies on a representation of the probability…
In exponential semi-martingale setting for risky asset we estimate the difference of prices of options when initial physical measure $P$ and corresponding martingale measure $Q$ change to $\tilde{P}$ and $\tilde{Q}$ respectively. Then, we…
This paper performs the numerical analysis and the computation of a Spread option in a market with imperfect liquidity. The number of shares traded in the stock market has a direct impact on the stock's price. Thus, we consider a…
This paper describes a general approach for stochastic modeling of assets returns and liability cash-flows of a typical pensions insurer. On the asset side, we model the investment returns on equities and various classes of fixed-income…
In this paper two portfolio choice models are studied: a purely possibilistic model, in which the return of a risky asset is a fuzzy number, and a mixed model in which a probabilistic background risk is added. For the two models an…
A functional risk curve gives the probability of an undesirable event as a function of the value of a critical parameter of a considered physical system. In several applicative situations, this curve is built using phenomenological…
This paper introduces a new type of risk measures, namely regime switching entropic risk measures, and study their applicability through simulations. The state of the economy is incorporated into the entropic risk formulation by using a…
We model investor heterogeneity using different required returns on an investment and evaluate the impact on the valuation of an investment. By assuming no disagreement on the cash flows, we emphasize how risk preferences in particular, but…
We consider the Bachelier model with linear price impact. Exponential utility indifference prices are studied for vanilla European options and we compute their non-trivial scaling limit for a vanishing price impact which is inversely…
We introduce a new volatility model for option pricing that combines Markov switching with the Realized GARCH framework. This leads to a novel pricing kernel with a state-dependent variance risk premium and a pricing formula for European…