Showing 1 - 10 of 20
A new insurance provider or a regulatory agency may be interested in determining a risk measure consistent with observed market prices of a collection of risks. Using a relationship between distorted coherent risk measures and spectral risk measures, we provide a method for reconstructing...
Persistent link: https://www.econbiz.de/10005375062
The maximum entropy principle provides a variational method to select a measure yielding pre-assigned mean values to a random variable. It can also be invoked to construct measures that render a stochastic process a martingale, thus providing a systematic way of constructing risk-neutral...
Persistent link: https://www.econbiz.de/10005462492
Here we present an application of two maxentropic procedures to determine the probability density distribution of compound sums of random variables, using only a finite number of empirically determined fractional moments. The two methods are the Standard method of Maximum Entropy (SME), and the...
Persistent link: https://www.econbiz.de/10011082325
In a previous paper we studied a method to determine the probability density of barrier crossing times by a Brownian motion from the knowledge of its Laplace transform. This knowledge combined with the method of maximum entropy yields quite good reconstructions. The aim of this work is to extend...
Persistent link: https://www.econbiz.de/10011117894
In this paper, we describe a general method for constructing the posterior distribution of an option price. Our framework takes as inputs the prior distributions of the parameters of the stochastic process followed by the underlying, as well as the likelihood function implied by the observed...
Persistent link: https://www.econbiz.de/10005099084
Previous work of J.T. Lewis is extended to include diffusions on level sets of functions [phi]n-->k with n >k in terms of the coordinates of the host space. The particular case k = 1 extends previous related work of M. van den Berg and J.T. Lewis.
Persistent link: https://www.econbiz.de/10005074614
In Gzyl and Mayoral (2008) we developed a technique to solve the following type of problems: How to determine a risk aversion function equivalent to pricing a risk with a load, or equivalent to pricing different risks by means of the same risk distortion function. The information on which the...
Persistent link: https://www.econbiz.de/10008494922
We solve a natural inverse problem for transition probabilities for Markov chains on rooted trees using hitting time distribution for leaves. Our solution is algorithmic and the natural statistics associated to our algorithm are consistent.
Persistent link: https://www.econbiz.de/10005223687
We extend an old result by Doob characterizing real-valued, Gaussian, stationary, Markov processes to the vector case. In this case a deterministic component appears that consists of a system of harmonic oscillators while the random part is a collection of independent oscillator processes,...
Persistent link: https://www.econbiz.de/10005223842
We study the relationship between two widely used risk measures, spectral measures and distortion risk measures. In both cases, the risk measure can be thought of as a re-weighting of some initial distribution. We prove that spectral risk measures are equivalent to distorted risk pricing...
Persistent link: https://www.econbiz.de/10010559843