June 2020 - 35 articles
In a one price economy, the Fundamental Theorem of Asset Pricing (FTAP) establishes that no-arbitrage is equivalent to the existence of an equivalent martingale measure. Such an equivalent measure can be derived as the normal unit vector of the hyper...
How can risk of a company be allocated to its divisions and attributed to risk factors? The Euler principle allows for an economically justified allocation of risk to different divisions. We introduce a method that generalizes the Euler principle to...
In this article, a risk-adjusted return on capital (RAROC) valuation scheme for loans is derived. The critical assumption throughout the article is that no market information on a borrower’s credit quality like bond or CDS (Credit Default Swap)...
This paper proposes a novel system-wide multi-state framework to model state occupations and the transitions among current, delinquency, default, prepayment, repurchase, short sale and foreclosure on mortgage loans. The approach allows for the modell...
We study a discrete time hedging and pricing problem in a market with the liquidity risk. We consider a discrete version of the constant elasticity of variance (CEV) model by applying Leland’s discrete time replication scheme. The pricing equat...
The present paper is devoted to the study of a bank salvage model with a finite time horizon that is subjected to stochastic impulse controls. In our model, the bank’s default time is a completely inaccessible random quantity generating its own...
The cost of cybersecurity incidents is large and growing. However, conventional methods for measuring loss and choosing mitigation strategies use simplifying assumptions and are often not supported by cyber attack data. In this paper, we present a mu...
We investigate the state dependence of the variance of the instantaneous variance of the S&P 500 index empirically. Time-series analysis of realized variance over a 20-year period shows strong evidence of an elasticity of variance of the variance...
This paper examines the joint movement and tail dependence structure between the pair of foreign exchange rates (EUR, USD and GBP) against the GHS, using daily exchange rates data expressed in GHS per unit of foreign currencies (EUR, USD and GBP) bet...
In the automotive industry, it is important to know whether the failure of some car parts may be related to the failure of others. This project studies warranty claims for five engine components obtained from a major car manufacturer with the purpose...
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