Related papers: Valuation of Equity Linked Securities with Guarant…
Statistical arbitrage methods identify mispricings in securities with the goal of building portfolios which are weakly correlated with the market. In pairs trading, an arbitrage opportunity is identified by observing relative price…
The relationship between set-valued risk measures for processes and vectors on the optional filtration is investigated. The equivalence of risk measures for processes and vectors and the equivalence of their penalty function formulations…
We predict asset returns and measure risk premia using a prominent technique from artificial intelligence -- deep sequence modeling. Because asset returns often exhibit sequential dependence that may not be effectively captured by…
This paper fundamentally reformulates economic and financial theory to include electronic currencies. The valuation of the electronic currencies will be based on macroeconomic theory and the fundamental equation of monetary policy, not the…
The purpose of this work is to explore the role that arbitrage opportunities play in pricing financial derivatives. We use a non-equilibrium model to set up a stochastic portfolio, and for the random arbitrage return, we choose a stationary…
We consider the consumption-based asset pricing model, derive a new modified basic pricing equation, and present its successive approximations using the Taylor series expansions of the investor's utility during the averaging time interval.…
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…
The use of machine learning to generate synthetic data has grown in popularity with the proliferation of text-to-image models and especially large language models. The core methodology these models use is to learn the distribution of the…
We study robust notions of good-deal hedging and valuation under combined uncertainty about the drifts and volatilities of asset prices. Good-deal bounds are determined by a subset of risk-neutral pricing measures such that not only…
We model investor heterogeneity using different required returns on an investment and evaluate the impact on the valuation of an investment. By assuming no disagreement on the cash flows, we emphasize how risk preferences in particular, but…
We introduce a new model for pricing corporate bonds, which is a modification of the classical model of Merton. In this new model, we drop the liquidity assumption of the firm's asset value process, and assume that there is a liquidly…
In this paper, we propose an equilibrium pricing model in a dynamic multi-period stochastic framework with uncertain income streams. In an incomplete market, there exist two traded risky assets (e.g. stock/commodity and weather derivative)…
We develop a theory for valuing non-diversifiable mortality risk in an incomplete market. We do this by assuming that the company issuing a mortality-contingent claim requires compensation for this risk in the form of a pre-specified…
Global fixed income returns span across multiple maturities and economies, that is, they naturally reside on multi-dimensional data structures referred to as tensors. In contrast to standard "flat-view" multivariate models that are agnostic…
A growing empirical literature suggests that equity-premium predictability is state dependent, with much of the forecasting power concentrated around recessionary periods (Henkel et al., 2011; Dangl and Halling, 2012; Devpura et al., 2018).…
During the last decade Levy processes with jumps have received increasing popularity for modelling market behaviour for both derviative pricing and risk management purposes. Chan et al. (2009) introduced the use of empirical likelihood…
We describe how the market-based average and volatility of the "actual" return, which the investors gain within their market sales, depend on the statistical moments, volatilities, and correlations of the current and past market trade…
We investigate common knowledge equilibrium of separable (or parity) and totally symmetric Boolean securities in distributed information market. We theoretically show that clearing price converges to the true value when a common prior…
We investigate the pricing of financial options under the 2-hypergeometric stochastic volatility model. This is an analytically tractable model that reproduces the volatility smile and skew effects observed in empirical market data. Using a…
A discrete time probabilistic model, for optimal equity allocation and portfolio selection, is formulated so as to apply to (at least) reinsurance. In the context of a company with several portfolios (or subsidiaries), representing both…