In this paper, we study the optimal excess-of-loss reinsurance and investment problem for an insurer with jump–diffusion risk model. The insurer is allowed to purchase reinsurance and invest in one risk-free asset and one risky asset whose price process satisfies the Heston model. The...

This paper focuses on the constant elasticity of variance (CEV) model for studying the utility maximization portfolio selection problem with multiple risky assets and a risk-free asset. The Hamilton–Jacobi–Bellman (HJB) equation associated with the portfolio optimization problem is...

Outlines the development of the construction sector in the period 1980-2001, e.g. the employment in collective-owned vs. state-owned enterprises, the influx of rural workers, role of labour contractors, and the impact of using pre-fabricated concrete and interior fittings such as doors, flooring...

The optimal capital growth strategy or Kelly strategy, has many desirable properties such as maximizing the asympotic long run growth of capital. However, it has considerable short run risk since the utility is logarithmic, with essentially zero Arrow-Pratt risk aversion. Most investors favor a...

Purpose – This paper aims to extend the Fama and French (FF) three-factor model in studying time-varying risk premiums of Sector Select Exchange Traded Funds (ETFs) under a Markov regime-switching framework. Design/methodology/approach – First, the original FF model is augmented to include...

Covered interest rate parity assumes that there is no risk premium on the hedged returns on currencies. However, empirical evidence indicates that risk premiums are not identically zero, and this is referred to as the forward premium puzzle. We show that there exist market regimes, within which...

Standard delta hedging fails to exactly replicate a European call option in the presence of transaction costs. We study a pricing and hedging model similar to the delta hedging strategy with an endogenous volatility parameter for the calculation of delta over time. The endogenous volatility...

The optimal investment policy for a standard multi-period mean–variance model is not time-consistent because the variance operator is not separable in the sense of the dynamic programming principle. With a nested conditional expectation mapping, we develop an investment model with time...