Subjective evaluations are widely used, but call for different contracts from traditional moral-hazard settings. Previous literature shows that contracts require payments to third parties, which real-world contracts rarely use. I show that the implicit assumption of deterministic contracts makes...

Uncertainty is a fundamental property of networks which evolve continually due to varying demand and capacity. The characterization of the stochasticity with scenario-based approaches has emerged as a promising method to systematically incorporate variability. Under this paradigm, each scenario...

In this paper, we consider optimal pairs trading strategies in terms of static optimality and dynamic optimality under mean-variance (MV) criterion. The spread of the entity pairs is assumed to be mean-reverting and follows an Ornstein-Uhlenbeck (OU) process. A constrained optimal control...

This paper provides inference methods for best linear approximations to functions which are known to lie within a band. It extends the partial identification literature by allowing the upper and lower functions defining the band to carry an index, and to be unknown but parametrically or...

This paper presents a Continuous-Time Hidden Markov Model (CT-HMM) of debt issuers' credit quality dynamics. We observe ratings published by several agencies (e.g., Standard & Poor's, Moody's, Fitch) for one or several issuers (e.g., countries) and assume that we can find a maximum-likelihood...

In this paper, we derive a representation for the value process associated to the solutions of FBSDEs in a jump-diffusion setting under multiple probability measures. Motivated by concrete financial problems, the latter representations are then applied to devise a generalization of the change of...

This paper introduces a novel Ito diffusion process to model high-frequency financial data, which can accommodate low-frequency volatility dynamics by embedding the discrete-time non-linear exponential GARCH structure with log-integrated volatility in a continuous instantaneous volatility...

This paper studies decision-making under uncertainty and introduces a new preference axiom called Subjective Independence . The latter requires some consistency between two forms of stochastic independence that can be inferred from choice behavior. Yet it can also be understood as a purely...

We show that the option hedging risk of an optimal, continuously rebalanced hedging strategy in an exponential Lévy model is well approximated by the risk taken from the discrete-time Black-Scholes model whose time step equals half of the excess kurtosis rate of the real-world stock returns....

We revisit the so-called Bergomi-Guyon expansion (Bergomi and Guyon, Stochastic volatility's orderly smiles, Risk, May 2012). The expansion provides the smile of implied volatility at second order in the volatility of volatility for general stochastic volatility models, including variance curve...