Related papers: Hedging in Sequential Experiments
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 bandit multiple hypothesis testing, each arm corresponds to a different null hypothesis that we wish to test, and the goal is to design adaptive algorithms that correctly identify large set of interesting arms (true discoveries), while…
This paper addresses the importance of incorporating various risk measures in portfolio management and proposes a dynamic hybrid portfolio optimization model that combines the spectral risk measure and the Value-at-Risk in the mean-variance…
We propose a new test to determine whether jumps are present in asset returns or other discretely sampled processes. As the sampling interval tends to 0, our test statistic converges to 1 if there are jumps, and to another deterministic and…
This article proposes a novel test for the martingale difference hypothesis based on the martingale difference divergence function, a recently developed dependence measure suitable for measuring the degree of conditional mean dependence of…
To identify statistically significant conclusions, it is proposed to simultaneously test hypotheses and alternatives. It is shown that, under the condition of free combination of hypotheses and alternatives, the closure method leads to…
Estimation of the covariance matrix of asset returns is crucial to portfolio construction. As suggested by economic theories, the correlation structure among assets differs between emerging markets and developed countries. It is therefore…
We propose a route for the evaluation of risk based on a transformation of the covariance matrix. The approach uses a `potential' or `objective' function. This allows us to rescale data from different assets (or sources) such that each data…
This article presents a deep reinforcement learning approach to price and hedge financial derivatives. This approach extends the work of Guo and Zhu (2017) who recently introduced the equal risk pricing framework, where the price of a…
This note proposes a procedure for enhancing the quality of probabilistic prediction algorithms via betting against their predictions. It is inspired by the success of the conformal test martingales that have been developed recently.
Foster and Hart proposed an operational measure of riskiness for discrete random variables. We show that their defining equation has no solution for many common continuous distributions including many uniform distributions, e.g. We show how…
The writers propose a mathematical Method for deriving risk weights which describe how a borrower's income, relative to their debt service obligations (serviceability) affects the probability of default of the loan. The Method considers the…
In this paper we study a risk-minimizing hedging problem for a semimartingale incomplete financial market where d+1 assets are traded continuously and whose price is expressed in units of the num\'{e}raire portfolio. According to the…
The general method is proposed for constructing a family of martingale measures for a wide class of evolution of risky assets. The sufficient conditions are formulated for the evolution of risky assets under which the family of equivalent…
We focus on a behavioral model, that has been recently proposed in the literature, whose rational can be traced back to the Half-Full/Half-Empty glass metaphor. More precisely, we generalize the Half-Full/Half-Empty approach to the context…
We present here a regress later based Monte Carlo approach that uses neural networks for pricing high-dimensional contingent claims. The choice of specific architecture of the neural networks used in the proposed algorithm provides for…
This paper studies the income fluctuation problem with capital income risk (i.e., dispersion in the rate of return to wealth). Wealth returns and labor earnings are allowed to be serially correlated and mutually dependent. Rewards can be…
We establish a Nash equilibrium in a market with $ N $ agents with the performance criteria of relative wealth level when the market return is unobservable. Each investor has a random prior belief on the return rate of the risky asset. The…
We consider the mean-variance hedging problem under partial information in the case where the flow of observable events does not contain the full information on the underlying asset price process. We introduce a martingale equation of a new…
This paper characterizes the best possible rate of growth of wealth in a Kelly betting game when repeatedly betting against a general i.i.d. null hypothesis $\mathscr{P}$, but the data are drawn i.i.d from an arbitrary alternative $Q$. We…