Building on the work of Bedford, Cooke and Joe, we show how multivariate data, which exhibit complex patterns of dependence in the tails, can be modelled using a cascade of pair-copulae, acting on two variables at a time. We use the pair-copula decomposition of a general multivariate...

In this paper we analyze how an individual should optimally invest in her own human capital when she also has financial wealth. We treat the individual’s option to take more education as expansion options and apply real option analysis. We characterize the individual’s optimal consumption...

Multi-period guarantees are often embedded in life insurance contracts. In this paper we consider the problem of hedging these multi-period guarantees in the presence of transaction costs. We derive the hedging strategies for the cheapest hedge portfolio for a multi-period guarantee that with...

A new model is presented which produces credit spreads that do not converge to zero for short maturities. Our set-up includes incomplete, i.e., delayed and asymmetric information. When the financial market observes the company's earnings with a delay, the effect on both default policy and credit...

Many real-world financial contracts have some sort of minimum rate of return guarantee included. One class of these guarantees is so-called relative guarantees, i.e., guarantees where the minimum guaranteed rate of return is given as a function of the stochastic return on a reference portfolio....

This paper develops a generalization of the linear quadratic control problem with partial information. As in the standard partial information setting, it is assumed that the state variable is only observed with noise. The idea in this paper is that the information level may be chosen optimally....

Control variates are often used to reduce variability in Monte Carlo estimates and their effectiveness is traditionally measured by the so-called speed-up factor. The main objective of this paper is to demonstrate that a control variate can also be applied to reduce the bias stemming from the...