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Stochastic differential equation (SDE) models are the foundation for pricing and hedging financial derivatives. The drift and volatility functions in SDE models are typically chosen to be algebraic functions with a small number (less than…
In this article, we consider the optimal investment-consumption problem for an agent with preferences governed by Epstein--Zin stochastic differential utility (EZ-SDU) who invests in a constant-parameter Black-Scholes-Merton market over the…
Computer modeling of human decision making is of large importance for, e.g., sustainable transport, urban development, and online recommendation systems. In this paper we present a model for predicting the behavior of an individual during a…
We solve robust optimization problem and show the example of the market model for which the worst case measure is not a martingale measure. In our model the instantaneous interest rate is determined by the Hull-White model and the investor…
In this paper, we study the asymptotic behavior of Asian option prices in the worst case scenario under an uncertain volatility model. We give a procedure to approximate the Asian option prices with a small volatility interval. By imposing…
In finance, the price of a volatile asset can be modeled using fractional Brownian motion (fBm) with Hurst parameter $H>1/2.$ The Black-Scholes model for the values of returns of an asset using fBm is given as, [Y_t=Y_0…
This article is part of a comprehensive research project on liquidity risk in asset management, which can be divided into three dimensions. The first dimension covers liability liquidity risk (or funding liquidity) modeling, the second…
We provide analytical pricing formula of corporate defaultable bond with both expected and unexpected default in the case with stochastic default intensity. In the case with constant short rate and exogenous default recovery using PDE…
Risk management is an important practice in the banking industry. In this paper we develop a new methodology to estimate and predict the probability of default (PD) based on the rating transition matrices, which relates the rating…
We describe a bottom-up framework, based on the identification of appropriate order parameters and determination of phase diagrams, for understanding progressively refined agent-based models and simulations of financial markets. We…
We study a random version of the population-market model proposed by Arlot, Marmi and Papini in Arlot et al. (2019). The latter model is based on the Yoccoz-Birkeland integral equation and describes a time evolution of livestock commodities…
This paper presents a novel semiparametric method to study the effects of extreme events on binary outcomes and subsequently forecast future outcomes. Our approach, based on Bayes' theorem and regularly varying (RV) functions, facilitates a…
Zero-suppressed binary decision diagrams (ZDDs) are a data structure representing Boolean functions, and one of the most successful variants of binary decision diagrams (BDDs). On the other hand, BDDs are also called branching programs in…
Pricing interest-rate financial derivatives is a major problem in finance, in which it is crucial to accurately reproduce the time-evolution of interest rates. Several stochastic dynamics have been proposed in the literature to model either…
The paper uses functional auto-regression to predict the dynamics of interest rate curve. It estimates the auto-regressive operator by extending methods of the reduced-rank auto-regression to the functional data. Such an estimation…
This paper explores the continuous-time limit of a class of Quasi Score-Driven (QSD) models that characterize volatility. As the sampling frequency increases and the time interval tends to zero, the model weakly converges to a…
Haircutting non-cash collateral has become a key element of the post-crisis reform of the shadow banking system and OTC derivatives markets. This article develops a parametric haircut model by expanding haircut definitions beyond the…
One of the risks derived from selling long term policies that any insurance company has, arises from interest rates. In this paper we consider a general class of stochastic volatility models written in forward variance form. We also deal…
Non-equilibrium phenomena occur not only in physical world, but also in finance. In this work, stochastic relaxational dynamics (together with path integrals) is applied to option pricing theory. A recently proposed model (by Ilinski et…
We consider the problem of hedging a European interest rate contingent claim with a portfolio of zero-coupon bonds and show that an HJM type Markovian model driven by an infinite number of sources of randomness does not have some of the…