Related papers: Firm Projects, NPV and Risk
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…
Wrong-Way Risk (WWR) is an important component in Funding Valuation Adjustment (FVA) modelling. Yet, the standard assumption is independence between market risks and the counterparty defaults and funding costs. This typical industrial…
Research funding agencies routinely use a proportion of their total revenues to support internal administration and marketing costs. The ratio of administration to total costs, referred to as the administration ratio, is highly variable and…
The role of portfolio construction in the implementation of equity market neutral factors is often underestimated. Taking the classical momentum strategy as an example, we show that one can significantly improve the main strategy's features…
We study the optimal portfolio selection problem under relative performance criteria in the market model with random coefficients from the perspective of many players game theory. We consider five random coefficients which consist of three…
In this paper we take a look at a simple portfolio insurance strategy using a protective put and computationally derive the investor's governing utility structures underlying such a strategy under alternative market scenarios. Investor…
This study presents the Adaptive Minimum-Variance Portfolio (AMVP) framework and the Adaptive Minimum-Risk Rate (AMRR) metric, innovative tools designed to optimize portfolios dynamically in volatile and nonstationary financial markets.…
We study social behaviour of agents on capital markets when these are perturbed by small perturbations. We use the mean field method. Social behaviour of agents on capital markets is described: volatility of the market, aversion constant…
Financial institutions have to allocate so-called "economic capital" in order to guarantee solvency to their clients and counter parties. Mathematically speaking, any methodology of allocating capital is a "risk measure", i.e. a function…
In this paper we introduce a novel approach to risk estimation based on nonlinear factor models - the "StressVaR" (SVaR). Developed to evaluate the risk of hedge funds, the SVaR appears to be applicable to a wide range of investments. Its…
In order to estimate the conditional risk of a portfolio's return, two strategies can be advocated. A multivariate strategy requires estimating a dynamic model for the vector of risk factors, which is often challenging, when at all…
All people have to make risky decisions in everyday life. And we do not know how true they are. But is it possible to mathematically assess the correctness of our choice? This article discusses the model of decision making under risk on the…
When we implement a portfolio selection methodology under a mean-risk formulation, it is essential to correctly model investors' risk aversion which may be time-dependent, or even state-dependent during the investment procedure. In this…
We study the problem of optimal long term portfolio selection with a view to beat a benchmark. Two kinds of objectives are considered. One concerns the probability of outperforming the benchmark and seeks either to minimise the decay rate…
The basic financial purpose of an enterprise is maximization of its value. Trade credit management should also contribute to realization of this fundamental aim. Many of the current asset management models that are found in financial…
Utility and risk are two often competing measurements on the investment success. We show that efficient trade-off between these two measurements for investment portfolios happens, in general, on a convex curve in the two dimensional space…
We derive a closed-form expression capturing the degree of Relative Risk Aversion (RRA) of investors for non-"fair" lotteries. We argue that our formula is superior to earlier methods that have been proposed, as it is a function of only…
Consider two similar drug companies with access to similar chemical libraries and synthesis methods, who each run an R&D program. The programs have the same number of stages, which each take the same amount of time, with the same costs,…
Nested simulation is a natural approach to tackle nested estimation problems in operations research and financial engineering. The outer-level simulation generates outer scenarios and the inner-level simulations are run in each outer…
In the information-based approach to asset pricing the market filtration is modelled explicitly as a superposition of signals concerning relevant market factors and independent noise. The rate at which the signal is revealed to the market…