Related papers: Risk-Adjusted Valuation for Real Option Decisions
This study provides the solution to the equity premium puzzle. The new model was developed by including the behavior of investors toward risk in financial markets in prior studies. The calculations of this newly tested model show that the…
This paper studies the equal risk pricing (ERP) framework for the valuation of European financial derivatives. This option pricing approach is consistent with global trading strategies by setting the premium as the value such that the…
We study the optimal timing of derivative purchases in incomplete markets. In our model, an investor attempts to maximize the spread between her model price and the offered market price through optimally timing her purchase. Both the…
We combine forward investment performance processes and ambiguity averse portfolio selection. We introduce the notion of robust forward criteria which addresses the issues of ambiguity in model specification and in preferences and…
Change-point processes are one flexible approach to model long time series. We propose a method to uncover which model parameter truly vary when a change-point is detected. Given a set of breakpoints, we use a penalized likelihood approach…
Understanding mortgage prepayment is crucial for any financial institution providing mortgages, and it is important for hedging the risk resulting from such unexpected cash flows. Here, in the setting of a Dutch mortgage provider, we…
In many sequential decision-making problems we may want to manage risk by minimizing some measure of variability in rewards in addition to maximizing a standard criterion. Variance related risk measures are among the most common…
The standard approach for constructing a Mean-Variance portfolio involves estimating parameters for the model using collected samples. However, since the distribution of future data may not resemble that of the training set, the…
The cryptocurrency market is volatile, non-stationary and non-continuous. Together with liquid derivatives markets, this poses a unique opportunity to study risk management, especially the hedging of options, in a turbulent market. We study…
The risk premium of a policy is the sum of the pure premium and the risk loading. In the classification ratemaking process, generalized linear models are usually used to calculate pure premiums, and various premium principles are applied to…
Real-time bidding (RTB) has become a major paradigm of display advertising. Each ad impression generated from a user visit is auctioned in real time, where demand-side platform (DSP) automatically provides bid price usually relying on the…
Sequences of repeated gambles provide an experimental tool to characterize the risk preferences of humans or artificial decision-making agents. The difficulty of this inference depends on factors including the details of the gambles offered…
Financial markets tend to switch between various market regimes over time, making stationarity-based models unsustainable. We construct a regime-switching model independent of asset classes for risk-adjusted return predictions based on…
This article's aim is to provide the solution to the equity premium puzzle without using calibrated values. Calibrated values of subjective time discount factor were used in my prior derived models because 4 variables were determined from 3…
We introduce a method to estimate simultaneously the tail and the threshold parameters of an extreme value regression model. This standard model finds its use in finance to assess the effect of market variables on extreme loss distributions…
In real-world decision-making problems, for instance in the fields of finance, robotics or autonomous driving, keeping uncertainty under control is as important as maximizing expected returns. Risk aversion has been addressed in the…
It is widely claimed in investment education and practice that extending the investment horizon reduces risk, and that diversifying investment timing, for example through dollar-cost averaging (DCA), further mitigates investment risk.…
This study contributes to understanding Valuation Adjustments (xVA) by focussing on the dynamic hedging of Credit Valuation Adjustment (CVA), corresponding Profit & Loss (P&L) and the P&L explain. This is done in a Monte Carlo simulation…
We consider a discrete-time dividend payout problem with risk sensitive shareholders. It is assumed that they are equipped with a risk aversion coefficient and construct their discounted payoff with the help of the exponential premium…
It is essential to incorporate the impact of investor behavior when modeling the dynamics of asset returns. In this paper, we reconcile behavioral finance and rational finance by incorporating investor behavior within the framework of…