Narrow search
Showing 1 - 10 of 111
Cover Image
Risk-Neutralizing Statistical Distributions : With an Application to Pricing Reinsurance Contracts on Fdic Losses
Madan, Dilip B. - 2005
This paper proposes methods for obtaining risk neutral distributions when only the statistical density is observed. We employ renormalized exponential tilts and estimate the tilt coefficients from related options markets. Particular emphasis is placed on reinsurance losses for which we price in...
Persistent link: https://www.econbiz.de/10012737374
Cover Image
Designing Countercyclical and Risk Based Aggregate Deposit Insurance Premia
Jarrow, Robert A. - 2014
This paper proposes an aggregate deposit insurance premium design that is risk-based in the sense that the premium structure ensures the deposit insurance system has a target of survival over the longer term. Such a premium system naturally exceeds the actuarily fair value and leads to a growth...
Persistent link: https://www.econbiz.de/10012709524
Cover Image
Pricing the Risks of Default
Madan, Dilip B. - 1998
This paper models default risk as composed of arrival and magnitude risks. In our model the two default components are explicitly priced as if they were traded in the futures market and the spot price of risky debt is derived as a consequence. We develop estimation strategies to evaluate the...
Persistent link: https://www.econbiz.de/10012791076
Cover Image
Measuring the Benefits of Diversification Across Portfolios
Madan, Dilip B.; Wang, King - 2021
A portfolio diversification index is defined as the ratio of an equivalent number of independent assets to the number … of assets. The equivalence is based on either attaining the same diversification benefit or spread reduction. The … diversification benefit is the difference in value of a value maximizing portfolio and the maximum value of the components. The spread …
Persistent link: https://www.econbiz.de/10013236444
Cover Image
Capital Adequacy of Financial Enterprises
De Jong, Piet - 2011
Financial entities commonly go bankrupt with disastrous consequences for individuals and society These consequences arise since bankrupt limited liability company is not responsible for losses exceeding its financial resources. Such losses are carried by unsecured creditors or, in the case of...
Persistent link: https://www.econbiz.de/10013130184
Cover Image
Pricing product options and using them to complete markets for functions of two underlying asset prices
Madan, Dilip B.; Wang, King - In: Journal of Risk and Financial Management 14 (2021) 8, pp. 1-19
Options paying the product of put and/or call option payouts at different strikes on two underlying assets are observed to synthesize joint densities and replicate differentiable functions of two underlying asset prices. The pricing of such options is undertaken from three perspectives. The...
Persistent link: https://www.econbiz.de/10013201039
Cover Image
Arbitrage free approximations to candidate volatility surface quotations
Madan, Dilip B.; Schoutens, Wim - In: Journal of Risk and Financial Management 12 (2019) 2, pp. 1-21
It is argued that the growth in the breadth of option strikes traded after the financial crisis of 2008 poses difficulties for the use of Fourier inversion methodologies in volatility surface calibration. Continuous time Markov chain approximations are proposed as an alternative. They are shown...
Persistent link: https://www.econbiz.de/10012611129
Cover Image
Capital Requirements, the Option Surface, Market, Credit and Liquidity Risk
Madan, Dilip B. - 2011
The Sato process model for option prices is expanded to accomodate credit considerations by incorporating a single jump to default occuring at an independent random time with a Weibull distribution. Explicit formulas for bid and ask prices are derived. Liquidity considerations are captured by...
Persistent link: https://www.econbiz.de/10013131024
Cover Image
Capital Requirements, Acceptable Risks and Profits
Madan, Dilip B. - 2011
Distortions introduced by limited liability towards higher volatility and kurtosis, increased liability skewness, reduced asset skewness and an incentive to decorrelate assets from liabilities are demonstrated in the context of a stylized model. The concept of acceptable risks operationalized by...
Persistent link: https://www.econbiz.de/10013133968
Cover Image
Execution Costs and Efficient Execution Frontiers
Madan, Dilip B. - 2010
Single period risks acceptable to the market at zero cost are modeled by a convex set of random variables leading to bid and ask prices that are trade size dependent. The theory of nonlinear expectations is employed to construct dynamically consistent sequences of bid and ask unit size prices...
Persistent link: https://www.econbiz.de/10013138036