arXiv research

We price a contingent claim liability using the utility indifference argument. We consider an agent with exponential utility, who invests in a stock and a money market account with the goal of maximizing the utility of his investment at the final time T in the presence of positive proportional transaction cost in two c…

Paper proposes a method to estimate project cost contingency reserves considering various types of uncertainty.

In this paper, we study the pricing of contingent claims under G-expectation. In order to accomodate volatility uncertainty, the price of the risky security is supposed to governed by a general linear stochastic differential equation (SDE) driven by G-Brownian motion. Utilizing the recently developed results of Backwar…

Improved method for encoding contingency tables reduces mutual information bias.

Paper compares ML models for fast power system contingency case identification.

This paper studies the valuation of European contingent claims with short selling bans under the equal risk pricing (ERP) framework proposed in Guo and Zhu (2017) where analytical pricing formulae were derived in the case of monotonic payoffs under risk-neutral measures. We establish a unified framework for this new pr…

Paper introduces benchmark-neutral pricing for long-term contracts.

This article focuses on the mathematical problem of existence and uniqueness of BSDE with a random terminal time which is a general random variable but not a stopping time, as it has been usually the case in the previous literature of BSDE with random terminal time. The main motivation of this work is a financial or ac…

Extends model uncertainty framework to non-linear affine processes for longevity bonds and contingent claims.

New pricing framework allocates costs of operating reserves and transmission.

In an incomplete market setting, we consider two financial agents, who wish to price and trade a non-replicable contingent claim. Assuming that the agents are utility maximizers, we propose a transaction price which is a result of the minimization of a convex combination of their utility differences. We call this price…

We consider indifference pricing of contingent claims consisting of payment flows in a discrete time model with proportional transaction costs and under exponential disutility. This setting covers utility maximisation as a special case. A dual representation is obtained for the associated disutility minimisation proble…

Paper introduces EEMs for pricing contingent claim returns.

Sensorimotor contingency theory offers a promising account of the nature of perception, a topic rarely addressed in the robotics community. We propose a developmental framework to address the problem of the autonomous acquisition of sensorimotor contingencies by a naive robot. While exploring the world, the robot inter…

Taxicab correspondence analysis visualizes sparse text data sets.

We shall provide in this paper good deal pricing bounds for contingent claims induced by the shortfall risk with some loss function. Assumptions we impose on loss functions and contingent claims are very mild. We prove that the upper and lower bounds of good deal pricing bounds are expressed by convex risk measures on …

The paper revisits and applies FTAP to life insurance and annuities pricing.

We study super-replication of contingent claims in an illiquid market with model uncertainty. Illiquidity is captured by nonlinear transaction costs in discrete time and model uncertainty arises as our only assumption on stock price returns is that they are in a range specified by fixed volatility bounds. We provide a …

Study stability of contingent claim solutions under probabilistic perturbations.

When applied to high-dimensional datasets, feature selection algorithms might still leave dozens of irrelevant variables in the dataset. Therefore, even after feature selection has been applied, classifiers must be prepared to the presence of irrelevant variables. This paper investigates a new training method called Co…

We study the effect of parameters uncertainties on a stochastic diffusion model, in particular the impact on the pricing of contingent claims, thanks to Dirichlet Forms methods. We apply recent techniques, developed by Bouleau, to hedging procedures in order to compute the sensitivities of SDE trajectories with respect…

Closed-form pricing method for multi-asset options.

Motivated by applications to perverse sheaves, we study combinatorics of two cell decompositions of the symmetric product of the complex line, refining the complex stratification by multiplicities. Contingency matrices, appearing in classical statistics, parametrize the cells of one such decomposition, which has the pr…

Within the context of the banking-related literature on contingent convertible bonds, we comprehensively formalise the design and features of a relatively new type of insurance-linked security, called a contingent convertible catastrophe bond (CocoCat). We begin with a discussion of its design and compare its relative …

The paper defines and implements risk-indifference pricing for American-style contingent claims.

We develop a pricing model for Sovereign Contingent Convertible bonds (S-CoCo) with payment standstills triggered by a sovereign's Credit Default Swap (CDS) spread. We model CDS spread regime switching, which is prevalent during crises, as a hidden Markov process, coupled with a mean-reverting stochastic process of spr…

We propose a new definition for tameness within the model of security prices as Itô processes that is risk-aware. We give a new definition for arbitrage and characterize it. We then prove a theorem that can be seen as an extension of the second fundamental theorem of asset pricing, and a theorem for valuation of contin…

Study upper hedging prices for contingent claims in models with various types of arbitrage.

We address the problem of maintaining high voltage power transmission networks in security at all time. This requires that power flowing through all lines remain below a certain nominal thermal limit above which lines might melt, break or cause other damages. Current practices include enforcing the deterministic "N-1" …

The paper extends portfolio theory to include contingent claim functions for option pricing.

An extension of the idea of state tameness is presented in a dynamic framework. The proposed model for financial markets is rich enough to provide analytical tools that are mostly obtained in models that arise as the solution of SDEs with deterministic coefficients. In the presented model the augmentation by a shadow s…

The target of this paper is to establish the bid-ask pricing frame work for the American contingent claims against risky assets with G-asset price systems (see \cite{Chen2013b}) on the financial market under Knight uncertainty. First, we prove G-Dooby-Meyer decomposition for G-supermartingale. Furthermore, we consider …

The paper examines how CoCo bonds can enhance financial stability in interconnected banking systems.

We price weather-contingent options by use of Monte Carlo simulations. After calibrating the models to fit quoted prices, we analyze bid-ask spreads in terms of correlations across markets. Results are presented for a double-trigger Weather vs. Natural Gas call option.

We study the solution's existence for a generalized Dynkin game of switching type which is shown to be the natural representation for general defaultable OTC contract with contingent CSA. This is a theoretical counterparty risk mitigation mechanism that allows the counterparty of a general OTC contract to switch from z…

Paper approximates XVA for European contingent claims using BSDEs and polynomial expansions.

In this work we study the price-hedge issue for general defaultable contracts characterized by the presence of a contingent CSA of switching type. This is a contingent risk mitigation mechanism that allow the counterparties of a defaultable contract to switch from zero to full/perfect collateralization and switch back …

The paper prices a new life insurance policy for couples, considering various contingent benefits.

We study contingent claims in a discrete-time market model where trading costs are given by convex functions and portfolios are constrained by convex sets. In addition to classical frictionless markets and markets with transaction costs or bid-ask spreads, our framework covers markets with nonlinear illiquidity effects…

Consider a financial market in which an agent trades with utility-induced restrictions on wealth. For a utility function which satisfies the condition of reasonable asymptotic elasticity at $-\infty$ we prove that the utility-based super-replication price of an unbounded (but sufficiently integrable) contingent claim i…

We consider an American contingent claim on a financial market where the buyer has additional information. Both agents (seller and buyer) observe the same prices, while the information available to them may differ due to some extra exogenous knowledge the buyer has. The buyer's information flow is modeled by an initial…

A new method prices time-to-event cash flows using survival analysis.

Modelling stock prices via jump processes is common in financial markets. In practice, to hedge a contingent claim one typically uses the so-called delta-hedging strategy. This strategy stems from the Black--Merton--Scholes model where it perfectly replicates contingent claims. From the theoretical viewpoint, there is …

This paper investigates whether learning contingency-awareness and controllable aspects of an environment can lead to better exploration in reinforcement learning. To investigate this question, we consider an instantiation of this hypothesis evaluated on the Arcade Learning Element (ALE). In this study, we develop an a…

We study the pricing of credit derivatives with asymmetric information. The managers have complete information on the value process of the firm and on the default threshold, while the investors on the market have only partial observations, especially about the default threshold. Different information structures are dis…

In a discrete-time financial market, a generalized duality is established for model-free superhedging, given marginal distributions of the underlying asset. Contrary to prior studies, we do not require contingent claims to be upper semicontinuous, allowing for upper semi-analytic ones. The generalized duality stipulate…

CoCos can increase financial fragility in certain network structures.

In this paper we study the existence of an optimal hedging strategy for the shortfall risk measure in the game options setup. We consider the continuous time Black--Scholes (BS) model. Our first result says that in the case where the game contingent claim (GCC) can be exercised only on a finite set of times, there exis…