This paper develops an analytical approach to compute the explicit asymptotic formulas for the probability that a time-inhomogeneous diffusion process does not cross a non-flat, lower/upper boundary. We derive the explicit formulas for the first four terms and provide the error bound. The...

We develop a new dynamic continuous-time model of optimal consumption and investment to include independent stochastic labor income. We reduce the problem of solving the Bellman equation to a problem of solving an integral equation. We then explicitly characterize the optimal consumption and...

Catastrophe (CAT) swaps are bilateral contracts through which CAT losses can be transferred between two counterparties. They do not require collateral upon initiation, making them default-risky, have an average maturity of 3 years and may use index triggers, which suggest the valuation model...

This paper presents a new string term structured model with stochastic volatility calibrated with futures and options market data. I use interest rate options to build a time series of the variance of the factors that drive the interest rates (level, slope, and curvature). In addition, the...

We provide a comparison of several GARCH and stochastic volatility models for forecasting the risk of cryptocurrencies. It turns out that the widely used GARCH(1,1) does not provide accurate risk predictions. In contrast, adding t-distributed innovations or allowing for regime changes improves...

This paper presents a new string term structured model with stochastic volatility calibrated with futures and options market data. I use interest rate options to build a time series of the variance of the factors that drive the interest rates (level, slope, and curvature). In addition, the...

In this paper, we derive constrained optimal investment strategies for long-term savers who are interested in investing their funds in stocks, but are afraid of potentially losing, for example, their retirement income. We call this probability hedging as it is determined by the probability of...

In this paper we present some counter-examples to show that an uncritical application of the usual methods of continuous-time portfolio optimization can be misleading in the case of a stochastic opportunity set. Cases covered are problems with stochastic interest rates, stochastic volatility,...

The inefficiency term in stochastic frontier models is usually assumed to have positive skewness; but when this assumption is not met, efficiency scores are overestimated. Potential endogeneity of model regressors poses an additional empirical challenge and greatly hinders identification of...

This paper investigates an optimal reinsurance policy using a risk model with dependent claim and insurance premium by assuming that the insurance premium is random. Their dependence structure is modeled using Sarmanov’s bivariate exponential distribution and the Farlie–Gumbel–Morgenstern...