The analysis of loss data is of utmost interest in many branches of the financial and insurance businesses, in structural engineering and in operations research among others. In the financial industry the determination of the distribution of losses is the first step to take in order to compute...

We present some results of the application of maximum entropy methods to determine the probability density of compound random variables. This problem is very important in the banking and insurance business, but also appears in system reliability and in operations research. The mathematical tool...

The maximum entropy method was originally proposed as a variational technique to determine probability densities from the knowledge of a few expected values. The applications of the method beyond its original role in statistical physics are manifold. An interesting feature of the method is its...

In an arbitrage-free economy with non-zero bid-ask spreads, the presence of payoffs, whose price is lower than the price of another payoff where the former dominates the latter, can not be discarded in general. However, their presence is a true market anomaly when the former price corresponds to...

This paper discusses the PCS Catastrophe Insurance Option Contracts, providing empirical support on the level of correspondence between real quotes and standard financial theory. The highest possible precision is incorporated since the real quotes are perfectly synchronized and the bid-ask...

Several authors have introduced different ways to measure integration between financial markets. Most of them are derived from the basic assumptions about asset prices, like the Law of One Price or the absence of arbitrage opportunities. Two perfectly integrated markets must give identical...

Bernardo and Ledoit (2000) develop a very appealing framework to compute pricing bounds based on what they call gain-loss ratio. Their method has many advantages and very interesting properties and so far one important drawback: The complexity of the numerical computation of the pricing bounds....

To analyze the economic significance of pricing errors of stock index options, a system of linear inequalities is developed which completely characterizes all risk arbitrage opportunities which arise if a well-behaved pricing kernel does not exist. The Stochastic Arbitrage system can account for...

In this paper the set of all second-order stochastic dominance (SSD) efficient portfolios is characterized by using a series of mixed-integer linear constrains. Our derivation employs a combination of the first-order conditions of the utility maximization problem together with a judicious use of...

In this paper it is shown how the set of all portfolios which are second-order stochastic dominance efficient can be characterized by using a series of mixed-integer linear constrains. Our derivation employs a combination of the first-order conditions of the utility maximization problem together...