I show that an asset pricing model for the equity claims of a value-maximizing firm can be constructed from its optimal financial contracting behavior. I study a dynamic contracting model in which firms trade off the costs and benefits of a given promise to pay external lenders in a specific...

We propose a simplified approach to mean-variance portfolio problems by changingtheir parametrisation from trading strategies to final positions. This allows us to treat,under a very mild no-arbitrage-type assumption, a whole range of quadratic optimisationproblems by simple mathematical tools...

This textbook provides an introduction to financial mathematics and financial engineering for undergraduate students who have completed a three- or four-semester sequence of calculus courses. It introduces the theory of interest, discrete and continuous random variables and probability,...

The aim of this paper is to develop a hedging methodology for making a portfolio of options delta, vega and gamma neutral by taking positions in other available options, and simultaneously minimizing the net premium to be paid for the hedging. A quadratic programming solution for the problem is...

Scenario stress testing is a useful and increasingly popular approach to assess portfolio performance under different market conditions. In this paper we focus on how to incorporate stress scenario information directly in portfolio construction as additional constraints to control for potential...

Using copulas, we investigate the pairwise dependence structures between two risk factors, oil price and aggregate market index price, and the US oil and gas sub-sector indices. We also explore the out-of-sample hedging performance of a hedging strategy by minimizing the conditional...

Pension funds and life insurers offering annuities hold long term liabilities linked to longevity. Risk management of life annuity portfolios aims to immunize or hedge both interest rate and mortality risks. Standard fixed interest duration-convexity hedging must be adapted to allow for both...

In this paper, we investigate the following problem: How can a financial institution, which has sold an option to a client, optimally hedge the payoff of this option by investing into a stock and into the option itself? Optimality is measured in terms of minimal variance and the associated...

This paper addresses the following question: How can a financial institution, which has issued a European option, optimally hedge the payoff of this option by investing into the underlying stock and into the option itself? Here, optimality is measured in terms of minimal variance and the...

This paper addresses the following question: How can a financial institution, which has issued a European option, optimally hedge the payoff of this option by investing into the underlying stock and into the option itself? Here, optimality is measured in terms of minimal variance and the...