Related papers: Mortgage Contracts and Underwater Default
We study the upper hedging price for contingent claims in market models with strong types of arbitrage: increasing profit, strong arbitrage, and arbitrage of the first kind. The existence of arbitrage may make the price smaller than if it…
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…
Machine learning algorithms are increasingly employed to price or value homes for sale, properties for rent, rides for hire, and various other goods and services. Machine learning-based prices are typically generated by complex algorithms…
Motivated by the recent popularity of machine learning training services, we introduce a contract design problem in which a provider sells a service that results in an outcome of uncertain quality for the buyer. The seller has a set of…
In this work we study the price-hedge issue for general defaultable contracts characterized by the presence of a contingent CSA of switching type. This is a contingent risk mitigation mechanism that allow the counterparties of a defaultable…
In this article, we consider a 2 factors-model for pricing defaultable bond with discrete default intensity and barrier where the 2 factors are stochastic risk free short rate process and firm value process. We assume that the default event…
Many households in developing countries lack formal financial histories, making it difficult for firms to extend credit, and for potential borrowers to receive it. However, many of these households have mobile phones, which generate rich…
The purpose of this paper is introducing rigorous methods and formulas for bilateral counterparty risk credit valuation adjustments (CVA's) on interest-rate portfolios. In doing so, we summarize the general arbitrage-free valuation…
This paper investigates the moral hazard problem in finite horizon with both continuous and lump-sum payments, involving a time-inconsistent sophisticated agent and a standard utility maximiser principal. Building upon the so-called dynamic…
As financial institutions increasingly rely on machine learning models to automate lending decisions, concerns about algorithmic fairness have risen. This paper explores the tradeoff between enforcing fairness constraints (such as…
We introduce the general arbitrage-free valuation framework for counterparty risk adjustments in presence of bilateral default risk, including default of the investor. We illustrate the symmetry in the valuation and show that the adjustment…
Discount is the difference between the face value of a bond and its present value. I propose an arbitrage-free dynamic framework for discount models, which provides an alternative to the Heath--Jarrow--Morton framework for forward rates. I…
We study the design of an optimal insurance contract in which the insured maximizes her expected utility and the insurer limits the variance of his risk exposure while maintaining the principle of indemnity and charging the premium…
This paper studies an optimal reinsurance problem for a utility-maximizing insurer, subject to the reinsurer's endogenous default and background risk. An endogenous default occurs when the insurer's contractual indemnity exceeds the…
Each period, two players bargain over a unit of surplus. Each player chooses between remaining flexible and committing to a take-it-or-leave-it offer at a cost. If players' committed demands are incompatible, then the current-period surplus…
We study financial networks with debt contracts and credit default swaps between specific pairs of banks. Given such a financial system, we want to decide which of the banks are in default, and how much of their liabilities can these…
Mathematically, the execution of an American-style financial derivative is commonly reduced to solving an optimal stopping problem. Breaking the general assumption that the knowledge of the holder is restricted to the price history of the…
In an online contract selection problem there is a seller which offers a set of contracts to sequentially arriving buyers whose types are drawn from an unknown distribution. If there exists a profitable contract for the buyer in the offered…
We study the loan contracts offered by decentralised loan protocols (DLPs) through the lens of financial derivatives. DLPs, which effectively are clearinghouses, facilitate transactions between option buyers (i.e. borrowers) and option…
This paper considers the hidden-action model of the principal-agent problem, in which a principal incentivizes an agent to work on a project using a contract. We investigate whether contracts with bounded payments are learnable and…