Related papers: Option-based Equity Risk Premiums
This note will extend the research presented in Brown & Rogers (2009) to the case of CRRA agents. We consider the model outlined in that paper in which agents had diverse beliefs about the dividends produced by a risky asset. We now assume…
This paper studies optimal insurance design under asymmetric information in a Stackelberg framework, where a monopolistic insurer faces uncertainty about both the insured's risk attitude, captured by a risk-aversion parameter, and the…
We propose a novel approach to infer investors' risk preferences from their portfolio choices, and then use the implied risk preferences to measure the efficiency of investment portfolios. We analyze a dataset spanning a period of six…
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 develop a pricing rule for life insurance under stochastic mortality in an incomplete market by assuming that the insurance company requires compensation for its risk in the form of a pre-specified instantaneous Sharpe ratio. Our…
This article develops a model that takes into account skewness risk in risk parity portfolios. In this framework, asset returns are viewed as stochastic processes with jumps or random variables generated by a Gaussian mixture distribution.…
We propose a fast and accurate numerical method for pricing European swaptions in multi-factor Gaussian term structure models. Our method can be used to accelerate the calibration of such models to the volatility surface. The pricing of an…
This paper presents a new model for options pricing. The Black-Scholes-Merton (BSM) model plays an important role in financial options pricing. However, the BSM model assumes that the risk-free interest rate, volatility, and equity premium…
This letter gives approximations to an integral appearing in the formula for downlink coverage probability of a typical user in Poisson point process (PPP) based stochastic geometry frameworks of the form $\int_0^\infty \exp\{ - (Ax + B…
This paper extends an option-theoretic approach to estimate liquidity spreads for corporate bonds. Inspired by Longstaff's equity market framework and subsequent work by Koziol and Sauerbier on risk-free zero-coupon bonds, the model views…
Due to the lack of reliable market information, building financial term-structures may be associated with a significant degree of uncertainty. In this paper, we propose a new term-structure interpolation method that extends classical spline…
This paper concerns a local volatility model in which volatility takes two possible values, and the specific value depends on whether the underlying price is above or below a given threshold value. The model is known, and a number of…
We apply the maximum entropy principle to economic systems in equilibrium and find the density function for the market's wealth. This is the same as price density which is used for insurance pricing. The risk aversion parameter of the agent…
This paper presents an option pricing model that incorporates clustered jumps using a bivariate Hawkes process. The process captures both self- and cross-excitation of positive and negative jumps, enabling the model to generate return…
Key to effective generic, or "black-box", variational inference is the selection of an approximation to the target density that balances accuracy and speed. Copula models are promising options, but calibration of the approximation can be…
Prediction markets are long known for prediction accuracy. This study systematically explores the fundamental properties of prediction markets, addressing questions about their information aggregation process and the factors contributing to…
We consider the problem of model selection type aggregation in the context of density estimation. We first show that empirical risk minimization is sub-optimal for this problem and it shares this property with the exponential weights…
This project works with the risk model developed by Li et al. (2015) and quests modelling, estimating and pricing insurance for risks brought in by innovative technologies, or other emerging or latent risks. The model considers two…
Most people are risk-averse (risk-seeking) when they expect to gain (lose). Based on a generalization of ``expected utility theory'' which takes this into account, we introduce an automaton mimicking the dynamics of economic operations.…
Spot option prices, forwards and options on forwards relevant for the commodity markets are computed when the underlying process S is modelled as an exponential of a process {\xi} with memory as e.g. a L\'evy semi-stationary process.…