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Persistent link: https://www.econbiz.de/10008217837
In this paper we discuss the tractability of stochastic volatility models for pricing and hedging options with the mean-variance hedging approach. We characterize the variance-optimal measure as the solution of an equation between Doleans exponentials; explicit examples include both models...
Persistent link: https://www.econbiz.de/10012786987
The main result of the paper is a stability theorem for the Snell envelope under convergence in distribution of the underlying processes: more precisely, we prove that if a sequence $(X^n)$ of stochastic processes converges in distribution for the Skorokhod topology to a process $X$ and...
Persistent link: https://www.econbiz.de/10005613402
We propose here a theory of cylindrical stochastic integration, recently developed by Mikulevicius and Rozovskii, as mathematical background to the theory of bond markets. In this theory, since there is a continuum of securities, it seems natural to define a portfolio as a measure on maturities....
Persistent link: https://www.econbiz.de/10005759614
Persistent link: https://www.econbiz.de/10008215021
Persistent link: https://www.econbiz.de/10008218809
The main result of the paper is a stability theorem for the Snell envelope under convergence in distribution of the underlying processes: more precisely, we prove that if a sequence $(X^n)$ of stochastic processes converges in distribution for the Skorokhod topology to a process $X$ and...
Persistent link: https://www.econbiz.de/10012790599
We propose a valuation model for catastrophe insurance options written on a loss index. This kind of options distinguishes between a loss period [0,T1], during which the catastrophes may happen, and a development period [T1,T2], during which losses entered before T1 are reestimated. Here we...
Persistent link: https://www.econbiz.de/10005374838
The financial crisis has dramatically demonstrated that the traditional approach to apply univariate monetary risk measures to single institutions does not capture sufficiently the perilous systemic risk that is generated by the interconnectedness of the system entities and the corresponding...
Persistent link: https://www.econbiz.de/10011266313
Motivated by empirical evidence of long range dependence in macroeconomic variables like interest rates we propose a fractional Brownian motion driven model to describe the dynamics of the short and the default rate in a bond market. Aiming at results analogous to those for affine models we...
Persistent link: https://www.econbiz.de/10011065084