This paper explores the predictive ability of volatility in the crude oil market. A comparison in the CBOE crude oil volatility index (OVX), GARCH and Stochastic Volatility Models are employed to investigate the forecasting performance. The daily price dataset, spanning from 2010 to 2022,...

The literature has pointed out that many decision makers could exhibit some degree of risk lovingness. Yet, it still lacks a suitable performance index which is consistent with the preferences of all of them, i.e., the preferred project has a higher score. To fulfill this need, our paper...

I assume that a market maker selects a buy and a sell price at her exchange to maximize profits. Up to first-order approximation, this problem is equivalent to a social planner’s problem and the problem of maximizing trader participation in the exchange. The optimal market maker rule has...

Despite growing interest in the use of complex models, such as machine learning (ML) models, for credit underwriting, ML models are difficult to interpret, and it is possible for them to learn relationships that yield de facto discrimination. How can we understand the behavior and potential...

This article discusses the problem of pricing discretely sampled variance swaps under the Heston stochastic volatility model with stochastic interest rate and stochastic dividend yield. In particular, our modelling framework consists of a stochastic interest rate driven by Hull-White (HW) or...

Considering the fair strike values of variance and volatility swaps, we use a stochastic volatility model in which the log volatility is given by a fractional Ornstein-Uhlenbeck process with two versions; a stationary version and a version with a deterministic initial value. Under these...

We extend the standard Cramér-Lundberg model to take the waiting time from occurrence to notification, and notification to settlement into account. Using this extended model and fixing a time of consideration, a prediction of the total outstanding liability of insurance claims that have...

When expected returns are linear in asset characteristics, the stochastic discount factor (SDF) that prices individual stocks can be represented as a factor model with GLS cross-sectional regression slope factors. Factors constructed heuristically by aggregating individual stocks into...

Real options are a type of investment choice that supports decision-makers in making better strategic management decisions while simultaneously reducing uncertainty in investments. In this paper, we present a new model to help investors handle uncertain investment environments flexibly. First,...

We propose Monte Carlo calibration algorithms for three models: local volatility with stochastic interest rates, stochastic local volatility with deterministic interest rates, and finally stochastic local volatility with stochastic interest rates. For each model, we include detailed derivations...