This paper introduces a valuation model of international pricing in the presence of political risk. Shipments between countries are charged with shipping costs and the country specific production processes are modelled as diffusion processes. The political risk is modelled as a continuous time...

This paper considers an infinite horizon investment-consumption model in which a single agent consumes and distributes his wealth between two assets, a bond and a stock. The problem of maximization of the total utility from consumption is treated, when state (amount allocated in assets) and...

We propose a structural model of a financial institution that can invest in both liquid and illiquid assets. The goal of this firm is to maximize the profit of its shareholders, while satisfying some capital requirement and liquidity constraint. Using stochastic control techniques, we derive the...

We propose a pairs trading model that incorporates a time-varying volatility of the Constant Elasticity of Variance type. Our approach is based on stochastic control techniques; given a fixed time horizon and a portfolio of two cointegrated assets, we define the trading strategies as the...

Following a companion paper where we proposed a model of a financial institution that can invest in both liquid and illiquid assets and whose goal is to maximize the profit of its shareholders, while satisfying some capital and liquidity requirements, we now incorporate correlations between the...

Competition glider flying is a game of stochastic optimization, in which mathematics and quantitative strategies have historically played an important role. We address the problem of uncertain future atmospheric conditions by constructing a nonlinear Hamilton-Jacobi-Bellman equation for the...

I discuss in an elementary manner the practical aspects of designing monotone Finite Difference schemes for Hamilton-Jacobi-Bellman equations arising in Quantitative Finance. These are nonlinear equations for which classic Finite Difference methods may fail to converge to the correct solution....

We propose a framework for analyzing the credit risk of secured loans under historical probability. We assume that the collateral cannot be liquidated immediately. Closed-form solutions for the expected loss are obtained for non-revolving loans. In the revolving case, we introduce a minimization...

We propose a model for analyzing dynamic pairs trading strategies using the stochastic control approach. The model is explored in an optimal portfolio setting, where the portfolio consists of a bank account and two co-integrated stocks and the objective is to maximize for a fixed time horizon,...