Proves lower discount rates are needed for future losses.
problem Determining appropriate discount rates for future losses.
method Analyzes climate change and discount rates debate.
result Risk requires a lower, not higher, discount rate.
On-device research index
arXiv research
A locally-built, LLM-digested index of recent arXiv papers in quant finance, geometry/topology, and statistical ML — keyword search served straight from SQLite on this machine.
168,657 papers · 148 categories
Trend · papers per month
48 results for “Discount rate”
This paper shows how forward rate interpolations are equivalent to discount factor interpolations in yield curve construction.
problem The challenge of choosing between different interpolation methods for yield curve construction.
method Demonstrates the equivalence between forward rate interpolations and discount factor interpolations.
result Some popular interpolation methods on forward rates are equivalent to classical interpolation methods on discount factors.
We show that different rates should be used for borrowing and discount rates, and that the risk-free rate should be used for discounting when assessing and comparing the cost of energy accross diffferent producers and technologies, on the example of photovoltaics. Recent quantitative models using the same rate for borr…
Repo convexityq-fin.PR
There 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 the discount rates for derivatives and bonds. Using a Hull-White …
Study optimal portfolio strategies with time-varying discount rates.
problem Optimizing portfolio decisions with a non-constant discount rate.
method Introduced subgame perfect strategies to handle time inconsistency, using fixed point iteration to find the utility-weighted discount rate.
result Subgame perfect strategies are equivalent to optimal strategies under certain utility function assumptions.
Study analyzes how discounts affect train ticket purchases and rescheduling in Switzerland.
problem Understanding how discounts influence train ticket buying and rescheduling behavior.
method Machine learning techniques, including causal machine learning, to analyze survey data.
result Increasing a discount rate by 1% increases the rescheduled trip share by 0.16% among always buyers.
Proposes a new method for determining LGD discount rates based on cost of capital.
problem Determining an appropriate discount rate for LGD estimation.
method Market-consistent pricing of defaulted loan portfolios to infer discount rates.
result Discount rates reflect both undiversifiable risk and time value of money.
Discount Modelsq-fin.MF
Proposes a new framework for discount models.
problem Arbitrage-free dynamic framework for discount models.
method Derives general consistency conditions for factor models.
result Alternative to Heath--Jarrow--Morton framework for forward rates.
Empirical study on long-term discount rates using historical bond prices.
problem Estimating long-term real interest rates and discount rates from historical bond data.
method Using Fourier transforms to derive the discount function and fitting it to historical data.
result Estimated long-term discount rates of 1.7% for UK and 2.2% for US.
Derivative pricing is about cash flow discounting at the riskfree rate. This teaching has lost its meaning post the financial crisis, due to the addition of extra value adjustments (XVA), which also made derivatives pricing and valuation a very difficult task for investors. This article recovers a properly defined disc…
Study optimal stopping for group with diverse discount rates using an attitude function.
problem Optimal stopping for a group with diverse discount rates under an aggregation preference.
method Develop iterative approach using consistent planning for time-consistent equilibria.
result Characterize all time-consistent mild equilibria as fixed points of an operator.
For environmental problems such as global warming future costs must be balanced against present costs. This is traditionally done using an exponential function with a constant discount rate, which reduces the present value of future costs. The result is highly sensitive to the choice of discount rate and has generated …
Paper tackles time inconsistency in portfolio management with stochastic volatility and power utility.
problem Time inconsistency in portfolio management with stochastic volatility and power utility.
method Extended Hamilton Jacobi Bellman (HJB) equation, fixed point iteration, and linear parabolic PDE.
result Subgame perfect strategies are characterized and solved through numerical experiments.
Model shows how discount rates affect intergenerational equity in climate mitigation.
problem Intergenerational equity in climate mitigation decisions.
method Extended DICE model with stochastic discount rates and financing extensions.
result Discount-rate uncertainty amplifies intergenerational inequality in climate mitigation.
We consider a discounted reward control problem in continuous time stochastic environment where the discount rate might be an unbounded function of the control process. We provide a set of general assumptions to ensure that there exists a smooth classical solution to the corresponding HJB equation. Moreover, some verif…
This paper considers the problem of consumption and investment in a financial market within a continuous time stochastic economy. The investor exhibits a change in the discount rate. The investment opportunities are a stock and a riskless account. The market coefficients and discount factor switch according to a finite…
In this paper, we study the dividend strategies for a shareholder with non-constant discount rate in a diffusion risk model. We assume that the dividends can only be paid at a bounded rate and restrict ourselves to the Markov strategies. This is a time inconsistent control problem. The extended HJB equation is given an…
In a continuous time stochastic economy, this paper considers the problem of consumption and investment in a financial market in which the representative investor exhibits a change in the discount rate. The investment opportunities are a stock and a riskless account. The market coefficients and discount factor switches…
Paper introduces non-linear discounting models for default compensation and climate valuation.
problem Valuation of non-replicable value and damage under default risk.
method Develops two models: one for risk-neutralising discounting and another for survival probability dependent discounting.
result Non-decaying discount factors (negative discount rates) are possible under certain scenarios.
The well-known theorem of Dybvig, Ingersoll and Ross shows that the long zero-coupon rate can never fall. This result, which, although undoubtedly correct, has been regarded by many as surprising, stems from the implicit assumption that the long-term discount function has an exponential tail. We revisit the problem in …
We introduce the logistic model of consumption growth, which captures a negative feedback loop preventing an unlimited growth of consumption due to finite biophysical resources of our planet. This simple dynamic model allows for derivation of the expression describing the declining long-term tail of a social discount c…
Equilibrium singular dividend control under ambiguity aggregation of heterogeneous discount ratesmath.OC
A firm with heterogeneous shareholders optimizes dividends under ambiguity aggregation.
problem Optimizing dividends for a firm with heterogeneous shareholders under ambiguity aggregation.
method Characterizing equilibrium dividends using a partition of the state space.
result Time-homogeneous equilibrium dividend law characterized by a partition of the state space.
In this paper we study perpetual American call and put options in an exponential Lévy model. We consider a negative effective discount rate which arises in a number of financial applications including stock loans and real options, where the strike price can potentially grow at a higher rate than the original discount f…
Optimal Multiple Stopping with Negative Discount Rate and Random Refraction Times under Levy Modelsq-fin.MF
This paper studies a class of optimal multiple stopping problems driven by Lévy processes. Our model allows for a negative effective discount rate, which arises in a number of financial applications, including stock loans and real options, where the strike price can potentially grow at a higher rate than the original d…
High future discounting rates favor inaction on present expending while lower rates advise for a more immediate political action. A possible approach to this key issue in global economy is to take historical time series for nominal interest rates and inflation, and to construct then real interest rates and finally obta…
Q-Learning overestimation bias influenced by learning rate, discount factor, and reward signal.
problem Overestimation bias in Q-Learning algorithm.
method Investigated the influence of learning rate, discount factor, and reward signal on Q-Learning's overestimation bias. Tuned parameters and used an exponential moving average of reward signal.
result Q-Learning can achieve more accurate value estimates by tuning parameters and using an exponential moving average of reward signal.
In this paper we extend the existing literature on xVA along three directions. First, we enhance current BSDE-based xVA frameworks to include initial margin in presence of defaults. Next, we solve the consistency problem that arises when the front-office desk of the bank uses trade-specific discount curves (CSA discoun…
Study introduces new methods to estimate stock return rates.
problem Estimating the required rate of return for stocks and private companies.
method Maximum likelihood, Bayesian, and Kalman filtering methods applied to historical data.
result Suggested methods can accurately estimate the required rate of return.
A primer on perpetualsq-fin.MF
The paper explores perpetual contracts in a financial market without arbitrage.
problem Modeling perpetual contracts in a continuous-time financial market.
method Derive model-free and semi-robust expressions for perpetual contracts' funding and discount rates.
result Explicit replication strategies for perpetual contracts are derived, relating them to traditional financial instruments.
Dividend discount models have been developed in a deterministic setting. Some authors (Hurley and Johnson, 1994 and 1998; Yao, 1997) have introduced randomness in terms of stochastic growth rates, delivering closed-form expressions for the expected value of stock prices. This paper extends such previous results by dete…
According 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 does not only influence the rate at which the underlying proce…
Faster algorithms for solving multichain MDPs under average-reward criterion.
problem Navigating towards the best connected component in multichain MDPs.
method Developed algorithms to better solve the navigational subproblem, achieving faster convergence rates.
result Improved rates of convergence and sharper complexity measures for multichain MDPs.
In this paper we provide a general solution for the dividend discount model in order to compute the intrinsic value of a common stock that allows for multiple stage growth rates of any predetermined number of periods. A mathematical proof is provided for the suggested general solution. A numerical application is also p…
Lower discount factors act as a regularizer in RL, improving performance.
problem Improving RL performance with limited data.
method Explicitly equating reduced discount factors to regularization terms.
result Regularization effectiveness depends on data properties.
The paper analyzes optimal dividend and capital injection strategies under time-inconsistent preferences.
problem Optimal dividend and capital injection strategies under time-inconsistent preferences.
method Diffusion risk model with general discount functions, weak equilibrium definition, HJB equation system.
result Explicit solutions and threshold types of optimal strategies derived under different discount functions.
Cash collateral is perfect in that it provides simultaneous counterparty credit risk protection and derivatives funding. Securities are imperfect collateral, because of collateral segregation or differences in CSA haircuts and repo haircuts. Moreover, the collateral rate term structure is not observable in the repo mar…
Study uses put-call parity to estimate cost of funding in equity derivatives markets.
problem Estimating the cost of funding in active equity derivative markets.
method Develops a method using European put and call prices to recover the implicit discount factor and cost of funding.
result Identifies the cost of funding in major equity markets, showing it is typically around 34 basis points above OIS.
We consider an individual or household endowed with an initial capital and an income, modeled as a deterministic process with a continuous drift rate. At first, we model the discounting rate as the price of a zero-coupon bond at zero under the assumption of a short rate evolving as an Ornstein-Uhlenbeck process. Then, …
NVMDP framework tackles non-stationary MDPs with varying discount rates.
problem Challenges in non-stationary environments and infinite-horizon formulations for reinforcement learning.
method Introduces NVMDP framework that accommodates non-stationarity and varying discount rates.
result NVMDPs provide a flexible mechanism to shape optimal policies without altering state or action spaces.
The objective of the present paper is to analyse various features of the Smith-Wilson method used for discounting under the EU regulation Solvency II, with special attention to hedging. In particular, we show that all key rate duration hedges of liabilities beyond the Last Liquid Point will be peculiar. Moreover, we sh…
An uncollateralized swap hedged back-to-back by a CCP swap is used to introduce FVA. The open IR01 of FVA, however, is a sure sign of risk not being fully hedged, a theoretical no-arbitrage pricing concern, and a bait to lure market risk capital, a practical business concern. By dynamically trading the CCP swap, with t…
In the "positive interest" models of Flesaker-Hughston, the nominal discount bond system is determined by a one-parameter family of positive martingales. In the present paper we extend this analysis to include a variety of distributions for the martingale family, parameterised by a function that determines the behaviou…
"Slimming" of power law tails by increasing market returnscond-mat.stat-mech
We introduce a simple generalization of rational bubble models which removes the fundamental problem discovered by [Lux and Sornette, 1999] that the distribution of returns is a power law with exponent less than 1, in contradiction with empirical data. The idea is that the price fluctuations associated with bubbles mus…
The Long Bond, Long Forward Measure and Long-Term Factorization in Heath-Jarrow-Morton Modelsq-fin.MF
This paper proves existence of the long bond, long forward measure and long-term factorization of the stochastic discount factor (SDF) of Alvarez and Jermann (2005) and Hansen and Scheinkman (2009) in Heath-Jarrow-Morton (HJM) models in the function space framework of Filipovic (2001). A sufficient condition on the wei…
Adaptive online learning algorithm improves history forgetting in nonstationary environments.
problem Adversarial nonstationary environments where future data can be very different from past data.
method Discounted regret in online convex optimization, FTRL-based algorithm, adaptive learning rate.
result Improves classical gradient descent with constant learning rate in online convex optimization.
Market valuation duration is 175 years, but drops to 46 years during crises.
problem Understanding the duration of market valuation and its impact on returns.
method Comparing market valuation ratios and dividends to estimate duration, analyzing the discount rate effect.
result Valuation duration is negatively correlated with market returns, with a robust out-of-sample R2 of 15%.
Modeling climate change costs with stochastic interest rates shows inequality, but funding abatement can reduce this.
problem Evaluating the costs and benefits of climate change mitigation with uncertain discount rates.
method Amended DICE model with stochastic interest rates and funding abatement costs.
result Introducing funding abatement can reduce intergenerational inequality in climate change costs.
In this paper we assume the insurance wealth process is driven by the compound Poisson process. The discounting factor is modelled as a geometric Brownian motion at first and then as an exponential function of an integrated Ornstein-Uhlenbeck process. The objective is to maximize the cumulated value of expected discoun…