Latest in q-fin.mf

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Distributions of Historic Market Data -- Relaxation and CorrelationsJul 11 2019We show that, for a class of mean-reverting models, the correlation function of stochastic variance (squared volatility) contains only one -- relaxation -- parameter. We generalize and simplify the expression for leverage for this class of models. We ... More
Exponential stock models driven by tempered stable processesJul 11 2019We investigate exponential stock models driven by tempered stable processes, which constitute a rich family of purely discontinuous L\'{e}vy processes. With a view of option pricing, we provide a systematic analysis of the existence of equivalent martingale ... More
Tempered stable distributions and processesJul 11 2019We investigate the class of tempered stable distributions and their associated processes. Our analysis of tempered stable distributions includes limit distributions, parameter estimation and the study of their densities. Regarding tempered stable processes, ... More
Real-world forward rate dynamics with affine realizationsJul 11 2019We investigate the existence of affine realizations for L\'{e}vy driven interest rate term structure models under the real-world probability measure, which so far has only been studied under an assumed risk-neutral probability measure. For models driven ... More
Systemic Optimal Risk Transfer EquilibriumJul 09 2019We propose a novel concept of a Systemic Optimal Risk Transfer Equilibrium (SORTE), which is inspired by the B\"uhlmann's classical notion of an Equilibrium Risk Exchange. We provide sufficient general assumptions that guarantee existence, uniqueness, ... More
Tax- and expense-modified risk-minimization for insurance payment processesJul 09 2019We study the problem of determining risk-minimizing investment strategies for insurance payment processes in the presence of taxes and expenses. We consider the situation where taxes and expenses are paid continuously and symmetrically and introduce the ... More
A Class of Solvable Multidimensional Stopping Problems in the Presence of Knightian UncertaintyJul 09 2019We investigate the impact of Knightian uncertainty on the optimal timing policy of an ambiguity averse decision maker in the case where the underlying factor dynamics follow a multidimensional Brownian motion and the exercise payoff depends on either ... More
Existence of Lévy term structure modelsJul 08 2019L\'evy driven term structure models have become an important subject in the mathematical finance literature. This paper provides a comprehensive analysis of the L\'evy driven Heath-Jarrow-Morton type term structure equation. This includes a full proof ... More
Common Decomposition of Correlated Brownian Motions and its Financial ApplicationsJul 07 2019In this paper, we develop a theory of common decomposition for two correlated Brownian motions, in which, by using change of time method, the correlated Brownian motions are represented by a triple of processes, $(X,Y,T)$, where $X$ and $Y$ are independent ... More
An alternative approach on the existence of affine realizations for HJM term structure modelsJul 07 2019We propose an alternative approach on the existence of affine realizations for HJM interest rate models. It is applicable to a wide class of models, and simultaneously it is conceptually rather comprehensible. We also supplement some known existence results ... More
Systemic Risk and Heterogeneous Interbank NetworkJul 06 2019We study the system of heterogeneous interbank lending and borrowing based on the relative average of log-capitalization through the linear combination of the average within groups and the ensemble average and describe the evolution of log-capitalization ... More
Existence of affine realizations for Lévy term structure modelsJul 04 2019We investigate the existence of affine realizations for term structure models driven by L\'evy processes. It turns out that we obtain more severe restrictions on the volatility than in the classical diffusion case without jumps. As special cases, we study ... More
Election predictions are arbitrage-free: response to TalebJul 02 2019Taleb (2018) claimed a novel approach to evaluating the quality of probabilistic election forecasts via no-arbitrage pricing techniques and argued that popular forecasts of the 2016 U.S. Presidential election had violated arbitrage boundaries. We show ... More
Compact embeddings for spaces of forward rate curvesJul 02 2019The goal of this note is to prove a compact embedding result for spaces of forward rate curves. As a consequence of this result, we show that any forward rate evolution can be approximated by a sequence of finite dimensional processes in the larger state ... More
Elicitability and Identifiability of Systemic Risk Measures and other Set-Valued FunctionalsJul 02 2019This paper is concerned with a two-fold objective. Firstly, we establish elicitability and identifiability results for systemic risk measures introduced in Feinstein, Rudloff and Weber (2017). Specifying the entire set of capital allocations adequate ... More
Adaptive Pricing in Insurance: Generalized Linear Models and Gaussian Process Regression ApproachesJul 02 2019We study the application of dynamic pricing to insurance. We view this as an online revenue management problem where the insurance company looks to set prices to optimize the long-run revenue from selling a new insurance product. We develop two pricing ... More
Markovian lifts of positive semidefinite affine Volterra type processesJul 02 2019We consider stochastic partial differential equations appearing as Markovian lifts of matrix valued (affine) Volterra type processes from the point of view of the generalized Feller property (see e.g., \cite{doetei:10}). We introduce in particular Volterra ... More
Optimal BookmakingJul 01 2019We introduce a general framework for continuous-time betting markets, in which a bookmaker can dynamically control the prices of bets on outcomes of random events. In turn, the prices set by the bookmaker affect the rate or intensity of bets placed by ... More
Affine realizations with affine state processes for stochastic partial differential equationsJun 30 2019The goal of this paper is to clarify when a stochastic partial differential equation with an affine realization admits affine state processes. This includes a characterization of the set of initial points of the realization. Several examples, as the HJMM ... More
Existence of affine realizations for stochastic partial differential equations driven by Lévy processesJun 30 2019The goal of this paper is to clarify when a semilinear stochastic partial differential equation driven by L\'evy processes admits an affine realization. Our results are accompanied by several examples arising in natural sciences and economics.
Time-changed \levy processes and option pricing: a critical commentJun 29 2019Carr and Wu (2004), henceforth CW, developed a framework that encompasses almost all of the continuous-time models proposed in the option pricing literature. Their framework hinges on the stopping time property of the time changes. By analyzing the measurability ... More
Near-Optimal Dynamic Asset Allocation in Financial Markets with Trading ConstraintsJun 28 2019We develop a dual control method for approximating investment strategies in incomplete environments that emerge from the presence of market frictions. Convex duality enables the approximate technology to generate lower and upper bounds on the optimal ... More
Correlators of Polynomial ProcessesJun 26 2019A process is polynomial if its extended generator maps any polynomial to a polynomial of equal or lower degree. Then its conditional moments can be calculated in closed form, up to the computation of the exponential of the so-called generator matrix. ... More
A simple approach to dual representations of systemic risk measuresJun 26 2019We describe a general approach to obtain dual representations for systemic risk measures of the "allocate first, then aggregate"-type, which have recently received significant attention in the literature. Our method is based on the possibility to express ... More
Against the Norm: Modeling Daily Stock Returns with the Laplace DistributionJun 25 2019Modeling stock returns is not a new task for mathematicians, investors, and portfolio managers, but it remains a difficult objective due to the ebb and flow of stock markets. One common solution is to approximate the distribution of stock returns with ... More
Macroscopic theorem of the portfolio optimization problem with a risk-free assetJun 20 2019The investment risk minimization problem with budget and return constraints has been the subject of research using replica analysis but there are shortcomings in the extant literature. With respect to Tobin's separation theorem and the capital asset pricing ... More
Optimal Reinsurance and Investment Strategies under Mean-Variance Criteria: Partial and Full InformationJun 20 2019Jul 04 2019This paper is concerned with an optimal reinsurance and investment problem for an insurance firm under the criterion of mean-variance. The driving Brownian motion and the rate in return of the risky asset price dynamic equation cannot be directly observed. ... More
Optimal Reinsurance and Investment Strategies under Mean-Variance Criteria: Partial and Full InformationJun 20 2019This paper is concerned with an optimal reinsurance and investment problem for an insurance firm under the criterion of mean-variance. The driving Brownian motion and the rate in return of the risky asset price dynamic equation cannot be directly observed. ... More
The Impact of Ambiguity on the Optimal Exercise Timing of Integral Option ContractsJun 18 2019We consider the impact of ambiguity on the optimal timing of a class of two-dimensional integral option contracts when the exercise payoff is a positively homogeneous measurable function. Hence, the considered class of exercise payoffs includes discontinuous ... More
A Clark-Ocone type formula via Ito calculus and its application to financeJun 16 2019An explicit martingale representation for random variables described as a functional of a Levy process will be given. The Clark-Ocone theorem shows that integrands appeared in a martingale representation are given by conditional expectations of Malliavin ... More
Calibration of Local-Stochastic Volatility Models by Optimal TransportJun 15 2019In this paper, we study a semi-martingale optimal transport problem and its application to the calibration of Local-Stochastic Volatility (LSV) models. Rather than considering the classical constraints on marginal distributions at initial and final time, ... More
Long-run risk sensitive dyadic impulse controlJun 14 2019In this paper long-run risk sensitive optimisation problem is studied with dyadic impulse control applied to continuous-time Feller-Markov process. In contrast to the existing literature, focus is put on unbounded and non-uniformly ergodic case by adapting ... More
Model Risk in Credit RiskJun 14 2019The issue of model risk in default modeling has been known since inception of the Academic literature in the field. However, a rigorous treatment requires a description of all the possible models, and a measure of the distance between a single model and ... More
Generalized Beta Prime Distribution: Stochastic Model of Economic Exchange and Properties of Inequality IndicesJun 11 2019We argue that a stochastic model of economic exchange, whose steady-state distribution is a Generalized Beta Prime (also known as GB2), and some unique properties of the latter, are the reason for GB2's success in describing wealth/income distributions. ... More
A sensitivity analysis of the long-term expected utility of optimal portfoliosJun 09 2019This paper discusses the sensitivity of the long-term expected utility of optimal portfolios for an investor with constant relative risk aversion. Under an incomplete market given by a factor model, we consider the utility maximization problem with long-time ... More
Learning from Others in the Financial MarketJun 07 2019Prediction problems in finance go beyond estimating the unknown parameters of a model (e.g of expected returns). This is because such a model would have to include knowledge about the market participants' propensity to change their opinions on the validity ... More
A comparison principle between rough and non-rough Heston models - with applications to the volatility surfaceJun 07 2019We present a number of related comparison results, which allow to compare moment explosion times, moment generating functions and critical moments between rough and non-rough Heston models of stochastic volatility. All results are based on a comparison ... More
Funding Adjustments in Equity Linear ProductsJun 06 2019Valuation adjustments are nowadays a common practice to include credit and liquidity effects in option pricing. Funding costs arising from collateral procedures, hedging strategies and taxes are added to option prices to take into account the production ... More
Implied and Realized Volatility: A Study of Distributions and the Distribution of DifferenceJun 05 2019We study distributions of realized variance (squared realized volatility) and squared implied volatility, as represented by VIX and VXO indices. We find that Generalized Beta distribution provide the best fits. These fits are much more accurate for realized ... More
Game-Theoretic Optimal Portfolios in Continuous TimeJun 05 2019We consider a two-person trading game in continuous time whereby each player chooses a constant rebalancing rule $b$ that he must adhere to over $[0,t]$. If $V_t(b)$ denotes the final wealth of the rebalancing rule $b$, then Player 1 (the `numerator player') ... More
Optimal Stopping under Model Ambiguity: a Time-Consistent Equilibrium ApproachJun 04 2019An unconventional approach for optimal stopping under model ambiguity is introduced. Besides ambiguity itself, we take into account how ambiguity-averse an agent is. This inclusion of ambiguity attitude, via an $\alpha$-maxmin nonlinear expectation, renders ... More
Many-player games of optimal consumption and investment under relative performance criteriaMay 28 2019We study a portfolio optimization problem for competitive agents with CRRA utilities and a common finite time horizon. The utility of an agent depends not only on her absolute wealth and consumption but also on her relative wealth and consumption when ... More
Variable annuities in a Lévy-based hybrid model with surrender riskMay 23 2019This paper proposes a market consistent valuation framework for variable annuities with guaranteed minimum accumulation benefit, death benefit and surrender benefit features. The setup is based on a hybrid model for the financial market and uses time-inhomogeneous ... More
Hedging crop yields against weather uncertainties -- a weather derivative perspectiveMay 18 2019The effects of weather on agriculture in recent years have become a major concern across the globe. Hence, the need for an effective weather risk management tool (weather derivatives) for agricultural stakeholders. However, most of these stakeholders ... More
A Nonlocal Approach to The Quantum Kolmogorov Backward Equation and Links to Noncommutative GeometryMay 17 2019The Accardi-Boukas quantum Black-Scholes equation can be used as an alternative to the classical approach to finance, and has been found to have a number of useful benefits. The quantum Kolmogorov backward equations, and associated quantum Fokker-Planck ... More
Inverting the Markovian projection, with an application to local stochastic volatility modelsMay 15 2019We study two-dimensional stochastic differential equations (SDEs) of McKean--Vlasov type in which the conditional distribution of the second component of the solution given the first enters the equation for the first component of the solution. Such SDEs ... More
Asset Pricing with Heterogeneous Beliefs and IlliquidityMay 14 2019This paper studies the equilibrium price of an asset that is traded in continuous time between N agents who have heterogeneous beliefs about the state process underlying the asset's payoff. We propose a tractable model where agents maximize expected returns ... More
A Solvable Two-dimensional Optimal Stopping Problem in the Presence of AmbiguityMay 14 2019According to conventional wisdom, ambiguity accelerates optimal timing by decreasing the value of waiting in comparison with the unambiguous benchmark case. We study this mechanism in a multidimensional setting and show that in a multifactor model ambiguity ... More
On the consistency of jump-diffusion dynamics for FX rates under inversionMay 13 2019In this note we investigate the consistency under inversion of jump diffusion processes in the Foreign Exchange (FX) market. In other terms, if the EUR/USD FX rate follows a given type of dynamics, under which conditions will USD/EUR follow the same type ... More
On the consistency of jump-diffusion dynamics for FX rates under inversionMay 13 2019Jul 08 2019In this note we investigate the consistency under inversion of jump diffusion processes in the Foreign Exchange (FX) market. In other terms, if the EUR/USD FX rate follows a given type of dynamics, under which conditions will USD/EUR follow the same type ... More
On the consistency of jump-diffusion dynamics for FX rates under inversionMay 13 2019May 16 2019In this note we investigate the consistency under inversion of jump diffusion processes in the Foreign Exchange (FX) market. In other terms, if the EUR/USD FX rate follows a given type of dynamics, under which conditions will USD/EUR follow the same type ... More
Asset Pricing with General Transaction Costs: Theory and NumericsMay 13 2019We study risk-sharing equilibria with general convex costs on the agents' trading rates. For an infinite-horizon model with linear state dynamics and exogenous volatilities, the equilibrium returns mean-revert around their frictionless counterparts -- ... More
Asset Pricing with General Transaction Costs: Theory and NumericsMay 13 2019Jun 07 2019We study risk-sharing equilibria with general convex costs on the agents' trading rates. For an infinite-horizon model with linear state dynamics and exogenous volatilities, the equilibrium returns mean-revert around their frictionless counterparts -- ... More
A Stock Selection Method Based on Earning Yield Forecast Using Sequence Prediction ModelsMay 13 2019Long-term investors, different from short-term traders, focus on examining the underlying forces that affect the well-being of a company. They rely on fundamental analysis which attempts to measure the intrinsic value an equity. Quantitative investment ... More
Repo convexityMay 08 2019There is an observed basis between repo discounting, implied from market repo rates, and bond discounting, stripped from the market prices of the underlying bonds. Here, this basis is explained as a convexity effect arising from the decorrelation between ... More
A class of recursive optimal stopping problems with applications to stock tradingMay 07 2019In this paper we introduce and solve a class of optimal stopping problems of recursive type. In particular, the stopping payoff depends directly on the value function of the problem itself. In a multi-dimensional Markovian setting we show that the problem ... More
A Binomial Asset Pricing Model in a Categorical SettingMay 06 2019Adachi and Ryu introduced a category Prob of probability spaces whose objects are all probability spaces and whose arrows correspond to measurable functions satisfying an absolutely continuous requirement in [Adachi and Ryu, 2019]. In this paper, we develop ... More
Fundamental Theorem of Asset Pricing under fixed and proportional transaction costsMay 06 2019We show that the lack of arbitrage in a model with both fixed and proportional transaction costs is equivalent to the existence of a family of absolutely continuous single-step probability measures together with an adapted process between the bid-ask ... More
Fundamental Theorem of Asset Pricing under fixed and proportional transaction costsMay 06 2019May 08 2019We show that the lack of arbitrage in a model with both fixed and proportional transaction costs is equivalent to the existence of a family of absolutely continuous single-step probability measures, together with an adapted process with values between ... More
Model-free pricing and hedging in discrete time using rough path signaturesMay 05 2019We make use of a family of primitive securities, in the spirit of Arrow-Debreu, to price and hedge in a model-free way path-dependent exotic derivatives in discrete time. These primitive securities are called signature payoffs. First, we show that cash ... More
Efficient Computation of Various Valuation Adjustments Under Local Lévy ModelsMay 05 2019Various valuation adjustments, or XVAs, can be written in terms of non-linear PIDEs equivalent to FBSDEs. In this paper we develop a Fourier-based method for solving FBSDEs in order to efficiently and accurately price Bermudan derivatives, including options ... More
Nonparametric pricing and hedging of exotic derivativesMay 02 2019In the spirit of Arrow-Debreu, we introduce a family of financial derivatives that act as primitive securities in that exotic derivatives can be approximated by their linear combinations. We call these financial derivatives signature payoffs. We show ... More
Risk measures and progressive enlargement of filtration: a BSDE approachApr 30 2019We consider dynamic risk measures induced by Backward Stochastic Differential Equations (BSDE) in enlargement of filtration setting. On a fixed probability space, we are given a standard Brownian motion and a pair of random variables $(\tau, \zeta) \in ... More
Pricing and hedging of VIX options for Barndorff-Nielsen and Shephard modelsApr 28 2019The VIX call options for the Barndorff-Nielsen and Shephard models will be discussed. Derivatives written on the VIX, which is the most popular volatility measurement, have been traded actively very much. In this paper, we give representations of the ... More
Risk-neutral pricing for APTApr 25 2019We consider the problem of super-replication (hedging without risk) for the Arbitrage Pricing Theory. The dual characterization of super-replication cost is provided. It is shown that the reservation prices of investors converge to this cost as their ... More
A neural network-based framework for financial model calibrationApr 23 2019A data-driven approach called CaNN (Calibration Neural Network) is proposed to calibrate financial asset price models using an Artificial Neural Network (ANN). Determining optimal values of the model parameters is formulated as training hidden neurons ... More
Optimal valuation of American callable credit default swaps under drawdownApr 22 2019This paper discusses the valuation of credit default swaps, where default is announced when the reference asset price has gone below certain level from the last record maximum, also known as the high-water mark or drawdown. We assume that the protection ... More
Certainty Equivalent and Utility Indifference Pricing for Incomplete Preferences via Convex Vector OptimizationApr 20 2019For incomplete preference relations that are represented by multiple priors and/or multiple -- possibly multivariate -- utility functions, we define a certainty equivalent as well as the utility buy and sell prices and indifference price bounds as set-valued ... More
Horizon-unbiased Investment with AmbiguityApr 20 2019In the presence of ambiguity on the driving force of market randomness, we consider the dynamic portfolio choice without any predetermined investment horizon. The investment criteria is formulated as a robust forward performance process, reflecting an ... More
ADOL - Markovian approximation of rough lognormal modelApr 19 2019In this paper we apply Markovian approximation of the fractional Brownian motion (BM), known as the Dobric-Ojeda (DO) process, to the fractional stochastic volatility model where the instantaneous variance is modelled by a lognormal process with drift ... More
No-arbitrage with multiple-priors in discrete timeApr 18 2019We investigate different notions of arbitrage in a multiple-priors setting in discrete time. We revisit the so-called quasi-sure no-arbitrage condition and prove a geometric and a quantitative version of it. We also study three alternative notions and ... More
Averaging plus Learning in financial marketsApr 17 2019This paper develops original models to study interacting agents in financial markets. The key feature of these models is how interactions are formulated and analysed. Agents learn from their observations and learning ability to interpret news or private ... More
Averaging plus Learning in financial marketsApr 17 2019Jun 04 2019This paper develops original models to study interacting agents in financial markets. The key feature of these models is how interactions are formulated and analysed. Agents learn from their observations and learning ability to interpret news or private ... More
Optimal loss-carry-forward taxation for Lévy risk processes stopped at general draw-down timeApr 17 2019Motivated by Kyprianou and Zhou (2009), Wang and Hu (2012), Avram et al. (2017), Li et al. (2017) and Wang and Zhou (2018), we consider in this paper the problem of maximizing the expected accumulated discounted tax payments of an insurance company, whose ... More
From multi-dimensional black scholes to Hamilton jacobiApr 16 2019The first widely used financial model is linked to dynamical Hamilton jacobi model
Nash Bargaining Over Margin Loans to Kelly GamblersApr 14 2019I derive practical formulas for optimal arrangements between sophisticated stock market investors (namely, continuous-time Kelly gamblers) and the brokers who lend them cash for leveraged bets on a high Sharpe asset (i.e. the market portfolio). Rather ... More
Behaving Optimally in Solar Renewable Energy Certificate MarketsApr 12 2019Solar Renewable Energy Certificate Markets (SREC) markets are a relatively novel market-based system to incentivize the production of energy from solar means. A regulator imposes a floor on the amount of energy each regulated firm must generate from solar ... More
Deep-learning based numerical BSDE method for barrier optionsApr 11 2019As is known, an option price is a solution to a certain partial differential equation (PDE) with terminal conditions (payoff functions). There is a close association between the solution of PDE and the solution of a backward stochastic differential equation ... More
Theory of Cryptocurrency Interest RatesApr 10 2019A term structure model in which the short rate is zero is developed as a candidate for a theory of cryptocurrency interest rates. The price processes of crypto discount bonds are worked out, along with expressions for the instantaneous forward rates and ... More
Theory of Cryptocurrency Interest RatesApr 10 2019May 10 2019A term structure model in which the short rate is zero is developed as a candidate for a theory of cryptocurrency interest rates. The price processes of crypto discount bonds are worked out, along with expressions for the instantaneous forward rates and ... More
Optimal excess-of-loss reinsurance for stochastic factor risk modelsApr 10 2019We study the optimal excess-of-loss reinsurance problem when both the intensity of the claims arrival process and the claim size distribution are influenced by an exogenous stochastic factor. We assume that the insurer's surplus is governed by a marked ... More
Martingale Optimal Transport DualityApr 09 2019We obtain a dual representation of the Kantorovich functional defined for functions on the Skorokhod space using quotient sets. Our representation takes the form of a Choquet capacity generated by martingale measures satisfying additional constraints ... More
A new median-based formula for the Black-Scholes-Merton TheoryApr 09 2019The Black-Scholes-Merton (BSM) theory for price variation has been well established in mathematical financial engineering. However, it has been recognized that long-term outcomes in practice may divert from the Black-Scholes formula, which is the expected ... More
Stability of martingale optimal transport and weak optimal transportApr 08 2019Under mild regularity assumptions, the transport problem is stable in the following sense: if a sequence of optimal transport plans $\pi_1, \pi_2, \ldots$ converges weakly to a transport plan $\pi$, then $\pi$ is also optimal (between its marginals). ... More
Term Structure Modeling under Volatility Uncertainty: A Forward Rate Model driven by G-Brownian MotionApr 05 2019We show how to set up a forward rate model in the presence of volatility uncertainty by using the theory of G-Brownian motion. In order to formulate the model, we extend the G-framework to integration with respect to two integrators and prove a version ... More
Forward Rank-Dependent Performance Criteria: Time-Consistent Investment Under Probability DistortionApr 03 2019We introduce the concept of forward rank-dependent performance processes, extending the original notion to forward criteria that incorporate probability distortions. A fundamental challenge is how to reconcile the time-consistent nature of forward performance ... More
Game of Variable Contributions to the Common Good under UncertaintyMar 31 2019We consider a stochastic game of contribution to the common good in which the players have continuous control over the degree of contribution, and we examine the gradualism arising from the free rider effect. This game belongs to the class of variable ... More
Price equations with symmetric supply/demand; implications for fat tailsMar 30 2019Implementing a set of microeconomic criteria, we develop price dynamics equations using a function of demand/supply with key symmetry properties. The function of demand/supply can be linear or nonlinear. The type of function determines the nature of the ... More
Optimal stopping for the exponential of a Brownian bridgeMar 29 2019In this paper we study the problem of stopping a Brownian bridge $X$ in order to maximise the expected value of an exponential gain function. In particular, we solve the stopping problem $$\sup_{0\le \tau\le 1}\E[\mathrm{e}^{X_\tau}]$$ which was posed ... More
Optimal Reinsurance and Investment in a Diffusion ModelMar 29 2019We consider a diffusion approximation to an insurance risk model where an external driver models a stochastic environment. The insurer can buy reinsurance. Moreover, investment in a financial market is possible. The financial market is also driven by ... More
Short Selling with Margin Risk and Recall RiskMar 28 2019Short sales are regarded as negative purchases in textbook asset pricing theory. In reality, however, the symmetry between purchases and short sales is broken by a variety of costs and risks peculiar to the latter. We formulate an optimal stopping model ... More
Modern Asset Theory: A Framework for Successful Active ManagementMar 22 2019Active management is a term that has many meanings and we have found the defining characteristics needed for success as an "active manager" elusive within the literature. In this paper we offer a set of criteria that defines an active manager and his ... More
Epstein-Zin Utility Maximization on Random HorizonsMar 21 2019This paper solves the consumption-investment problem with Epstein-Zin utility on a random horizon. In an incomplete market, we take the random horizon to be a stopping time adapted to the market filtration, generated by all observable, but not necessarily ... More
Computation of systemic risk measures: a mixed-integer linear programming approachMar 20 2019Systemic risk is concerned with the instability of a financial system whose members are interdependent in the sense that the failure of a few institutions may trigger a chain of defaults throughout the system. Recently, several systemic risk measures ... More
A fast method for pricing American options under the variance gamma modelMar 18 2019We investigate methods for pricing American options under the variance gamma model. The variance gamma process is a pure jump process which is constructed by replacing the calendar time by the gamma time in a Brownian motion with drift, which makes it ... More
Semimartingale theory of monotone mean--variance portfolio allocationMar 16 2019We study dynamic optimal portfolio allocation for monotone mean--variance preferences in a general semimartingale model. Armed with new results in this area we revisit the work of Cui, Li, Wang and Zhu (2012, MAFI) and fully characterize the circumstances ... More
A lending scheme for a system of interconnected banks with probabilistic constraints of failureMar 14 2019We derive a closed form solution for an optimal control of interbank lending subject to terminal probability constraints on the failure of a bank. The solution can be applied to a network of banks providing a general solution when aforementioned probability ... More
Derivative of a Conic Problem with a Unique SolutionMar 13 2019We view a conic optimization problem that has a unique solution as a map from its data to its solution. If sufficient regularity conditions hold at a solution point, namely that the implicit function theorem applies to the normalized residual function ... More
Derivative of a Conic Problem with a Unique SolutionMar 13 2019Mar 15 2019We view a conic optimization problem that has a unique solution as a map from its data to its solution. If sufficient regularity conditions hold at a solution point, namely that the implicit function theorem applies to the normalized residual function ... More
Derivative of a Conic Problem with a Unique SolutionMar 13 2019Mar 27 2019We view a conic optimization problem that has a unique solution as a map from its data to its solution. If sufficient regularity conditions hold at a solution point, namely that the implicit function theorem applies to the normalized residual function ... More