Paper models transition risk using jump-diffusion model to price credit swaps.
problem Capturing transition risk in financial markets.
method Calibrated jump-diffusion model to CDS term structure, using quantile regression.
result Jump-diffusion model captures transition risk, jumps represent green policies.
Paper analyzes systematic jump risk around the clock using news narratives.
problem Identifying and managing priced risks in real-time market conditions.
method Combining high-frequency market data with news narratives classified by an LLM.
result Significant heterogeneity in risk premia, with macroeconomic news commanding the largest premium.
The paper values and hedges EPS products with jumps and default risks.
problem Valuation and risk management of EPS products under financial crises and default risks.
method Developed pricing frameworks using jump-diffusion and default models, derived closed-form formulas, and analysed hedging strategies.
result Quantified residual losses from counterparty default risk and defined default-adjusted premiums.
Model predicts jump risk premia influencing cryptocurrency futures and option performance.
problem Capturing asymmetric and time-varying skewness in cryptocurrency returns.
method Bivariate Hawkes process with positive and negative jump premia.
result Inferred jump risk premia predict futures cost of carry and option performance.
The study reveals unspanned risks in equity option risk premiums, explaining negative premiums for certain options.
problem Explaining negative risk premiums for certain equity option types.
method Developed a decomposition of equity option risk premiums, operationalized the pricing kernel process, and incorporated unspanned risks.
result Empirical evidence supports the presence of unspanned risks, explaining negative risk premiums for certain options.
The paper extends the market price of risk for electricity swap contracts, incorporating jump risk.
problem Pricing electricity swap contracts with consideration of jump risk.
method Introducing a Merton type model with jumps and transferring to the physical measure, comparing arithmetic and geometric averaging.
result A decomposition of swap's market price of risk into classical and market price of risk components.
Neural jump model improves option pricing accuracy.
problem Jump risk in option pricing.
method Neural jump stochastic differential equation model with Gumbel-Softmax gradient learning.
result Neural jump components significantly improve option pricing accuracy.
Optimizes dynamic investment portfolios with correlated jumps.
problem Maximizing expected terminal wealth in a multivariate Merton model with dependent jumps.
method Approximating CVaR with comonotonic bounds and maximizing expected terminal wealth.
result Improved optimization of dynamic investment portfolios.
This paper extends the results of the article [C. Klüppelberg and S. M. Pergamenchtchikov. Optimal consumption and investment with bounded downside risk for power utility functions. In Optimality and Risk: {\it Modern Trends in Mathematical Finance. The Kabanov Festschrift}, pages 133-169, 2009] to a jump-diffusion set…
Extends option pricing framework without risk-free asset using Levy jumps.
problem Valuing derivatives in markets without a traded risk-free bond.
method Introduces common Levy jump dynamics, uses Ito-Levy calculus, FFT, and COS algorithms.
result Calibrations show jump models reduce pricing errors and fit volatility smiles better than Black-Scholes.
Non-spanning identification of scheduled event risk in option pricing.
problem Separating continuous surface from scheduled jump in option pricing.
method Modeling FOMC decisions, CPI releases, and NFP reports as deterministic-time jumps in risk-neutral option pricing.
result Improves held-out event-spanning pricing with Gaussian and two-component mixture jumps.
This paper proposes a new integrated variance estimator based on order statistics within the framework of jump-diffusion models. Its ability to disentangle the integrated variance from the total process quadratic variation is confirmed by both simulated and empirical tests. For practical purposes, we introduce an itera…
Investigates optimal PPI strategies in jump-diffusion models to mitigate downside risk.
problem Gap risk in PPI strategies due to jumps in asset price dynamics.
method Optimization problem with S-shaped utility functions, solved via martingale approach in a jump-diffusion framework.
result Determines optimal PPI strategy to maximize expected utility of terminal wealth.
Study parameter sensitivities in bond pricing models with jumps.
problem Analyzing the impact of parameters on bond pricing models with jumps.
method Theoretical analysis and MATLAB simulations of a Brownian motion and compound Poisson process.
result Explicit call price formula and verification of sensitivities.
Investigates JM for reducing downside risk in market regimes.
problem Mitigating downside risk during market downturns.
method Statistical jump model for identifying market regimes, optimizing penalty for state transitions.
result JM-guided strategies outperform traditional models in reducing risk and enhancing returns.
Unified kernel for prediction markets reduces belief variance forecast error.
problem Lack of standardized tools for quoting and hedging belief risk in prediction markets.
method Logit jump-diffusion model with risk-neutral drift, calibration pipeline, and coherent derivative layer.
result Model reduces forecast error compared to diffusion-only and probability-space baselines.
This paper solves the inversion problem for jump processes using Markovian projections.
problem Calibrating jump-diffusion models with both local and stochastic features.
method Inverting Markovian projections for pure jump processes.
result Constructs calibrated local stochastic intensity (LSI) models for credit risk applications.
The article develops a model for skewness risk in risk parity portfolios.
problem Managing skewness risk in asset allocation models.
method Modeling asset returns with skewness and jumps, deriving analytical formulas for risk contributions.
result Skewness-based risk parity portfolios outperform volatility-based portfolios in managing jump risks.
This paper examines how the U.S.--China trade war affects stock markets, finding evidence of financial contagion and changes in risk channels.
problem The impact of the U.S.--China trade war on stock markets and financial contagion.
method Developed a novel jump-diffusion process to account for risk contagion, using high-frequency financial data and quasi-maximum likelihood estimator.
result Evidence of financial contagion from the U.S. to China, with changes in risk contagion channels.
This paper estimates VaR for corn and soybean markets using jump processes.
problem Quantifying potential losses in commodity portfolios under market conditions.
method Modeling VaR for a diversified portfolio of corn and soybean positions with standard Brownian motions and jump processes.
result Compared VaR values in markets with and without jumps, providing insights for risk management.
The paper introduces a new risk measure for financial models with jumps.
problem The limitations of point-in-time risk measures in models with jumps.
method Proposes an intra-horizon expected shortfall for profit and loss processes.
result The intra-horizon expected shortfall is a coherent risk measure for various Lévy processes.
We extend the Vasiček loan portfolio model to a setting where liabilities fluctuate randomly and asset values may be subject to systemic jump risk. We derive the probability distribution of the percentage loss of a uniform portfolio and analyze its properties. We find that the impact of liability risk is ambiguous and …
Investment and insurance decisions are studied in a model with nonlinear portfolio frictions and background risk.
problem Investment and insurance decisions under a model with nonlinear portfolio frictions and background risk.
method Dynamic programming approach to find optimality conditions.
result Agent can choose to assume, partially assume, or purchase total insurance against adverse jumps in wealth.
In this article we extend earlier work on the jump-diffusion risk-sensitive asset management problem [SIAM J. Fin. Math. (2011) 22-54] by allowing jumps in both the factor process and the asset prices, as well as stochastic volatility and investment constraints. In this case, the HJB equation is a partial integro-diffe…
Study optimizes investment strategies in markets with contagious price jumps.
problem Optimizing portfolios in financial markets with contagious price jumps.
method Applied stochastic maximum principle, backward stochastic differential equations, and linear-quadratic control techniques.
result Obtained efficient strategy and efficient frontier in semi-closed form.
The paper analyzes optimal investment strategies in a game with jump risk, deriving mean field equilibria.
problem Optimal investment strategies in a game with jump risk and peer competition.
method Formulated mean field game and n-player game models, characterized equilibrium states, and derived approximation errors.
result Explicit mean field equilibrium and approximate Nash equilibrium for large n-player games.
Neural Lévy model improves risk and density forecasting for financial returns.
problem Financial returns exhibit heavy tails, volatility clustering, and jumps.
method Proposes a neural Lévy jump-diffusion framework that learns conditional drift, diffusion, jump intensity, and size distribution.
result Demonstrates improved calibration, sharper tail control, and risk reduction.
Cryptocurrency, the most controversial and simultaneously the most interesting asset, has attracted many investors and speculators in recent years. The visibly significant market capitalization of cryptos also motivates modern financial instruments such as futures and options. Those will depend on the dynamics, volatil…
Study on hedging CVA in jump-diffusion setting using Monte Carlo simulations.
problem Hedging Credit Valuation Adjustment (CVA) in financial portfolios.
method Monte Carlo simulation in Black-Scholes and Merton jump-diffusion settings.
result Hedging CVA is crucial for stable trading strategies, especially in jump-diffusion settings.
We study a portfolio selection problem in a continuous-time Itô-Markov additive market with prices of financial assets described by Markov additive processes which combine Lévy processes and regime switching models. Thus the model takes into account two sources of risk: the jump diffusion risk and the regime switching …
The downside risk of a portfolio of (equity)assets is generally substantially higher than the downside risk of its components. In particular in times of crises when assets tend to have high correlation, the understanding of this difference can be crucial in managing systemic risk of a portfolio. In this paper we genera…
Develops a new model for pricing without arbitrage opportunities.
problem Arbitrage opportunities in standard jump-diffusion models.
method Introduces a multi-type jump-diffusion model with diffusion-dependent jumps.
result Derives no-arbitrage condition linking drift to model parameters.
Unified framework for growth models with environmental risk and pollution-dependent disasters.
problem Analyzing how rare but catastrophic shocks interact with capital accumulation and pollution in stochastic growth models.
method General Poisson point process formulation leading to non-local HJB equations with closed-form solutions.
result Unified framework captures how environmental degradation amplifies macroeconomic vulnerability and strengthens incentives for abatement.
Develops a numerical method for LRM strategies in BNS models with infinite active jumps.
problem Calculating locally risk-minimizing strategies for non-martingale BNS models with infinite active jumps.
method Modified Malliavin calculus expression and Monte Carlo method for non-martingale BNS models.
result Proposes a numerical method for LRM strategies in non-martingale BNS models with infinite active jumps.
New model estimates corporate defaults using pure jump processes, capturing extreme events.
problem Estimating corporate defaults using standard diffusion models that underestimate short-term probabilities.
method Introduced pure jump processes with negative jumps only, derived formulas, calibrated parameters, and implemented practical tools.
result Models redistribute credit risk towards shorter maturities, improving short-term default probability estimates.
Extends nonlinear filtering to predictable jump times.
problem Filtering with jumps in both signal and observation, especially when jump times are known.
method Derive Kushner-Stratonovich and Zakai equations for predictable discontinuities.
result Extends classical nonlinear filtering results to a setting with predictable discontinuities.
Calibrates carbon futures option pricing using high-frequency data.
problem Estimating equity and variance risk premia for carbon futures options.
method Multifactor stochastic volatility framework with jumps, employing indirect inference.
result Provides insights into carbon futures and option dynamics.
This paper considers a portfolio optimization problem in which asset prices are represented by SDEs driven by Brownian motion and a Poisson random measure, with drifts that are functions of an auxiliary diffusion factor process. The criterion, following earlier work by Bielecki, Pliska, Nagai and others, is risk-sensit…
In this article, we consider a Markov process X, starting from x and solving a stochastic differential equation, which is driven by a Brownian motion and an independent pure jump component exhibiting state-dependent jump intensity and infinite jump activity. A second order expansion is derived for the tail probability …
In this paper we consider the problem of calculating the quantiles of a risky position, the dynamic of which is described as a continuous time regime-switching jump-diffusion, by using Fourier Transform methods. Furthermore, we study a classical option-based portfolio strategy which minimizes the Value-at-Risk of the h…
The paper models cryptocurrency price and volatility with jumps and fractional volatility.
problem Empirical evidence shows jumps in cryptocurrency price and volatility.
method Fractional stochastic volatility model with jumps and short-term volatility dependency.
result Fractional stochastic volatility models outperform other models in pricing and hedging cryptocurrency options.
Proposes second-order Esscher transform for Lévy models in financial markets.
problem Risk management and quantification in markets with jumps and Lévy dynamics.
method Derives densities, equivalent measures, and pricing formulas for European call options.
result Option prices are bounded and monotonic with the second-order Esscher parameter.
This article studies a portfolio optimization problem, where the market consisting of several stocks is modeled by a multi-dimensional jump-diffusion process with age-dependent semi-Markov modulated coefficients. We study risk sensitive portfolio optimization on the finite time horizon. We study the problem by using a …
We consider a structural default model in an interconnected banking network as in Lipton [International Journal of Theoretical and Applied Finance, 19(6), 2016], with mutual obligations between each pair of banks. We analyse the model numerically for two banks with jumps in their asset value processes. Specifically, we…
A new jump diffusion regime-switching model is introduced, which allows for linking jumps in asset prices with regime changes. We prove the existence and uniqueness of the solution to the risk-sensitive asset management criterion maximisation problem in this setting. We provide an ODE for the optimal value function, wh…
We investigate the existence of affine realizations for Lévy 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 by Wiener processes, all results obtained under the risk-neutral appro…
Revisits Jarrow & Turnbull model for credit and liquidity risk.
problem Modeling credit and liquidity risk in financial markets.
method Uses foreign exchange analogy and partially observable exchange rate.
result Derives tractable term structure models and explicit valuation formulae.
This paper stidies the first passage times to constant boundaries for mixed-exponential jump diffusion processes. Explicit solutions of the Laplace transforms of the distribution of the first passage times, the joint distribution of the first passage times and undershoot (overshoot) are obtained. As applications, we pr…