Related papers: Regime Switching Entropic Risk Measures on Crude O…
We pick up the regime switching model for asset returns introduced by Rogers and Zhang. The calibration involves various markets including implied volatility in order to gain additional predictive power. We focus on the calculation of risk…
The paper provides an overview of the theory and applications of risk-sensitive Markov decision processes. The term 'risk-sensitive' refers here to the use of the Optimized Certainty Equivalent as a means to measure expectation and risk.…
In an observed generalized semi-Markov regime, estimation of transition rate of regime switching leads towards calculation of locally risk minimizing option price. Despite the uniform convergence of estimated step function of transition…
Measuring model risk is required by regulators on financial and insurance markets. We separate model risk into parameter estimation risk and model specification risk, and we propose expected shortfall type model risk measures applied to…
We consider a risk-sensitive optimization of consumption-utility on infinite time horizon where the one-period investment gain depends on an underlying economic state whose evolution over time is assumed to be described by a discrete-time,…
This paper investigates the use of risk measures and theories of choice for modeling risk-averse route choice and traffic network equilibrium with random travel times. We interpret the postulates of these theories in the context of routing,…
Risk-sensitive planning aims to identify policies maximizing some tail-focused metrics in Markov Decision Processes (MDPs). Such an optimization task can be very costly for the most widely used and interpretable metrics such as threshold…
This paper is concerned with the problem of finding the optimal of extraction policies of an oil field in light of various financial and economical restrictions and constraints. Taking into account the fact that the oil price in worldwide…
In a continuous time stochastic economy, this paper considers the problem of consumption and investment in a financial market in which the representative investor exhibits a change in the discount rate. The investment opportunities are a…
In this paper we present elementary computations for some Markov modulated counting processes, also called counting processes with regime switching. Regime switching has become an increasingly popular concept in many branches of science. In…
This paper investigates the pricing of European-style lookback options when the price dynamics of the underlying risky asset are assumed to follow a Markov-modulated Geo-metric Brownian motion; that is, the appreciation rate and the…
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…
In classical Markov Decision Processes (MDPs), action costs and transition probabilities are assumed to be known, although an accurate estimation of these parameters is often not possible in practice. This study addresses MDPs under cost…
In this paper analytic formulas for electricity derivatives are calculated. To this end, we assume that electricity spot prices follow a 3-regime Markov regime-switching model with independent spikes and drops and periodic transition…
Most people are risk-averse (risk-seeking) when they expect to gain (lose). Based on a generalization of ``expected utility theory'' which takes this into account, we introduce an automaton mimicking the dynamics of economic operations.…
Entropy based ideas find wide-ranging applications in finance for calibrating models of portfolio risk as well as options pricing. The abstracted problem, extensively studied in the literature, corresponds to finding a probability measure…
Having a perfect model to compute the optimal policy is often infeasible in reinforcement learning. It is important in high-stakes domains to quantify and manage risk induced by model uncertainties. Entropic risk measure is an exponential…
This work adopts a novel approach to determine the risk and return of crude oil stocks by employing Arbitrage Pricing Theory (APT) and Quantile Regression (QR).The APT identifies the underlying risk factors likely to impact crude oil…
This paper studies the pricing of European-style Asian options when the price dynamics of the underlying risky asset are assumed to follow a Markov- modulated geometric Brownian motion; that is, the appreciation rate and the volatility of…
In the regime switching extension of Black-Scholes-Merton model of asset price dynamics, one assumes that the volatility coefficient evolves as a hidden pure jump process. Under the assumption of Markov regime switching, we have considered…