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A version of indifference valuation of a European call option is proposed that includes statistical regularities of nonstochastic randomness. Classical relations (forward contract value and Black-Scholes formula) are obtained as particular…

Over-the-counter derivatives have contributed significantly to the effectiveness and efficiency of the international financial system but also entail significant counterparty credit risk. Collateralization is one of the most important and…

We study the problem of reducing the variance of Monte Carlo estimators through performing suitable changes of the sampling measure which are induced by feedforward neural networks. To this end, building on the concept of vector stochastic…

Our previous results are extended to the case of the margin account, which may depend on the contract's value for the hedger and/or the counterparty. The present work generalizes also the papers by Bergman (1995), Mercurio (2013) and…

This paper examines how shocks to currency volatilities predict exchange rates. Using option-implied volatilities, we construct a dynamic, directed network of volatility connections. Currencies that transmit more volatility shocks, which…

Stochastic volatility models based on Gaussian processes, like fractional Brownian motion, are able to reproduce important stylized facts of financial markets such as rich autocorrelation structures, persistence and roughness of sample…

The robust option pricing problem is to find upper and lower bounds on fair prices of financial claims using only the most minimal assumptions. It contrasts with the classical, model-based approach and gained prominence in the wake of the…

A positive correlation between exposure and counterparty credit risk gives rise to the so-called Wrong-Way Risk (WWR). Even after a decade of the financial crisis, addressing WWR in both sound and tractable ways remains challenging.…

In this note, we develop stock option price approximations for a model which takes both the risk o default and the stochastic volatility into account. We also let the intensity of defaults be influenced by the volatility. We show that it…

The modal factor model represents a new factor model for dimension reduction in high dimensional panel data. Unlike the approximate factor model that targets for the mean factors, it captures factors that influence the conditional mode of…

In the information-based approach to asset pricing the market filtration is modelled explicitly as a superposition of signals concerning relevant market factors and independent noise. The rate at which the signal is revealed to the market…

Models of stochastic choice typically use conditional choice probabilities given menus as the primitive for analysis, but in the field these are often hard to observe. Moreover, studying preferences over menus is not possible with this…

Most of the stochastic orders for comparing random variables, considered in the literature, are afflicted with two main drawbacks: (i) lack of connex property and (ii) lack of consideration of any dependence structure between the random…

We consider high-dimensional asset price models that are reduced in their dimension in order to reduce the complexity of the problem or the effect of the curse of dimensionality in the context of option pricing. We apply model order…

We propose a model for the credit markets in which the random default times of bonds are assumed to be given as functions of one or more independent "market factors". Market participants are assumed to have partial information about each of…

In this paper we propose a copula contagion mixture model for correlated default times. The model includes the well known factor, copula, and contagion models as its special cases. The key advantage of such a model is that we can study the…

We study the revenue performance of sequential posted price mechanisms and some natural extensions, for a general setting where the valuations of the buyers are drawn from a correlated distribution. Sequential posted price mechanisms are…

Selling a single item to $n$ self-interested buyers is a fundamental problem in economics, where the two objectives typically considered are welfare maximization and revenue maximization. Since the optimal mechanisms are often impractical…

Valuation and parity formulas for both European-style and American-style exchange options are presented in a general financial model allowing for jumps, possibility of default and "bubbles" in asset prices. The formulas are given via…

One way of evaluating social choice (voting) rules is through a utilitarian distortion framework. In this model, we assume that agents submit full rankings over the alternatives, and these rankings are generated from underlying, but…