Related papers: Withdrawal Success Estimation
In most real scenarios the construction of a risk-neutral portfolio must be performed in discrete time and with transaction costs. Two human imposed constraints are the risk-aversion and the profit maximization, which together define a…
Consider a symmetric $\alpha$-stable L\'evy process with $\alpha\in (1,2)$. We study shifted small ball probabilities for these processes in the uniform topology, when the shift function is an arbitrary continuous function which starts at…
Even in the face of deteriorating and highly volatile demand, firms often invest in, rather than discard, aging technologies. In order to study this phenomenon, we model the firm's profit stream as a Brownian motion with negative drift. At…
Exact results for the first passage time and leapover statistics of symmetric and one-sided Levy flights (LFs) are derived. LFs with stable index alpha are shown to have leapover lengths, that are asymptotically power-law distributed with…
We consider an expected utility maximization problem where the utility function is not necessarily concave and the time horizon is uncertain. We establish a necessary and sufficient condition for the optimality for general non-concave…
In this paper we study the mean of the first exit time from a bounded interval of various L\'evy processes. We establish sharp two-sided estimates of the mean for L\'evy processes under certain condition on their characteristic exponents.…
This paper formulates and solves the optimal stopping problem for a loan made to one's self from a tax-advantaged retirement account such as a 401(k), 403(b), or 457(b) plan. If the plan participant has access to an external asset with a…
This paper studies the optimal multiple-stopping problem arising in the context of the timing option to withdraw from a project in stages. The profits are driven by a general spectrally negative Levy process. This allows the model to…
In stochastic finance, one traditionally considers the return as a competitive measure of an asset, {\it i.e.}, the profit generated by that asset after some fixed time span $\Delta t$, say one week or one year. This measures how well (or…
For a bucket test with a single criterion for success and a fixed number of samples or testing period, requiring a $p$-value less than a specified value of $\alpha$ for the success criterion produces statistical confidence at level $1 -…
Sustaining efficiency and stability by properly controlling the equity to asset ratio is one of the most important and difficult challenges in bank management. Due to unexpected and abrupt decline of asset values, a bank must closely…
This paper concerns the recursive utility maximization problem. We assume that the coefficients of the wealth equation and the recursive utility are concave. Then some interesting and important cases with nonlinear and nonsmooth…
A mean-reverting financial instrument is optimally traded by buying it when it is sufficiently below the estimated `mean level' and selling it when it is above. In the presence of linear transaction costs, a large amount of value is paid…
Random walk models with log-normal outcomes fit local market observations remarkably well. Yet interconnected or recursive structures - layered derivatives, leveraged positions, iterative funding rounds - periodically produce power-law…
This paper studies the valuation of a class of default swaps with the embedded option to switch to a different premium and notional principal anytime prior to a credit event. These are early exercisable contracts that give the protection…
Consider an investor trading dynamically to maximize expected utility from terminal wealth. Our aim is to study the dependence between her risk aversion and the distribution of the optimal terminal payoff. Economic intuition suggests that…
What grounds the rule of thumb that a(n American) retiree can safely withdraw 4% of their initial retirement wealth in their first year of retirement, then increase that rate of consumption with inflation? I address that question with a…
For long term investments, model portfolios are defined at the level of indexes, a setup known as Strategic Asset Allocation (SAA). The possible outcomes at a scale of a few decades can be obtained by Monte Carlo simulations, resulting in a…
A continuous-time financial portfolio selection model with expected utility maximization typically boils down to solving a (static) convex stochastic optimization problem in terms of the terminal wealth, with a budget constraint. In…
The overall performance or expected excess risk of an iterative machine learning algorithm can be decomposed into training error and generalization error. While the former is controlled by its convergence analysis, the latter can be tightly…