We consider an optimal risk-sensitive portfolio allocation problem accounting for the possibility of cascading defaults. Default events have an impact on the distress state of the surviving stocks in the portfolio. We study the recursive system of non-Lipschitz quasi-linear parabolic HJB-PDEs...

We formulate the optimal balance sheet management problem as a linear program and study it using a duality approach. In addition to helping to determine the optimal balance sheet, the dual problem also provides us the market prices of interest rate risk and credit risk. Our methodology is used...

Renewable portfolio standards, feed-in-tariffs, and market premia are widely used policy instruments to promote investments in renewable energy sources. Regulators continuously evaluate these instruments along the main electricity policy objectives of affordability, reliability, and...

The value of an equity investment can be framed as an embedded call option on a firm's assets. The embedded call option creates a non-linear relationship between stock returns and underlying risk factors; however, such option value and the impact of this non-linearity are often underestimated or...