Related papers: Mortgage Contracts and Underwater Default
Is an option to early terminate a swap at its market value worth zero? At first sight it is, but in presence of counterparty risk it depends on the criteria used to determine such market value. In case of a single uncollateralised swap…
This paper studies the stochastic modeling of market drawdown events and the fair valuation of insurance contracts based on drawdowns. We model the asset drawdown process as the current relative distance from the historical maximum of the…
This paper studies a valuation framework for financial contracts subject to reference and counterparty default risks with collateralization requirement. We propose a fixed point approach to analyze the mark-to-market contract value with…
Climate-driven flood risk increasingly necessitates managed retreat through government buyout programmes, yet empirical evidence documents substantial racial and economic disparities in programme implementation. Here we develop a…
We study financial networks where banks are connected through bilateral liabilities and may default when resources are insufficient to meet obligations. We consider both the standard proportional clearing model and a priority-proportional…
We consider an exchange who wishes to set suitable make-take fees to attract liquidity on its platform. Using a principal-agent approach, we are able to describe in quasi-explicit form the optimal contract to propose to a market maker. This…
We develop a stochastic free-boundary model of housing tenure decisions in markets with high mobility risk, such as areas near military installations. Housing prices and rents follow correlated diffusion processes, and households face an…
We develop a finite horizon continuous time market model, where risk averse investors maximize utility from terminal wealth by dynamically investing in a risk-free money market account, a stock written on a default-free dividend process,…
I examine how upstream mergers affect negotiated prices when suppliers bargain with a monopoly intermediary selling products to final consumers. Conventional wisdom holds that such transactions lower negotiated prices when the products are…
Debt aversion can have severe adverse effects on financial decision-making. We propose a model of debt aversion, and design an experiment involving real debt and saving contracts, to elicit and jointly estimate debt aversion with…
It is well-known that Excess-of-Loss reinsurance has more marketability than Stop-Loss reinsurance, though Stop-Loss reinsurance is the most prominent setting discussed in the optimal (re)insurance design literature. We point out that…
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…
What type of delegation contract should be offered when facing a risk of the magnitude of the pandemic we are currently experiencing and how does the likelihood of an exogenous early termination of the relationship modify the terms of a…
We use the theory of cooperative games for the design of fair insurance contracts. An insurance contract needs to specify the premium to be paid and a possible participation in the benefit (or surplus) of the company. It results from the…
We consider a financial market with a stock exposed to a counterparty risk inducing a drop in the price, and which can still be traded after this default time. We use a default-density modeling approach, and address in this incomplete…
Enterprise workloads usually call for an uptime service level agreement (SLA) at the pain of contractual penalty in the event of slippage. Often, the strategy is to introduce ad-hoc HA (High Availability) mechanisms in response. Implemented…
In this paper we develop structural first passage models (AT1P and SBTV) with time-varying volatility and characterized by high tractability, moving from the original work of Brigo and Tarenghi (2004, 2005) [19] [20] and Brigo and Morini…
In this paper, we have studied the pricing of a continuously collateralized CDS. We have made use of the "survival measure" to derive the pricing formula in a straightforward way. As a result, we have found that there exists irremovable…
Managing risk at the aggregate level is crucial for banks and financial institutions as required by the Basel III framework. In this paper, we introduce discrete time Bayesian state space models with Poisson measurements to model aggregate…
Catastrophe risk is a major threat faced by individuals, companies, and entire economies. Catastrophe (CAT) bonds have emerged as a method to offset this risk and a corresponding literature has developed that attempts to provide a…