57 research outputs found
Information Asymmetry in Pricing of Credit Derivatives
We study the pricing of credit derivatives with asymmetric information. The
managers have complete information on the value process of the firm and on the
default threshold, while the investors on the market have only partial
observations, especially about the default threshold. Different information
structures are distinguished using the framework of enlargement of filtrations.
We specify risk neutral probabilities and we evaluate default sensitive
contingent claims in these cases
Comparison of insiders’ optimal strategies depending on the type of side-information
AbstractIn this paper, we consider a complete continuous-time financial market with discontinuous prices and different types of side-information (initial or progressive strong information, weak information). The agents strive to maximize the expectation of the logarithm of their terminal wealth. Our purpose is to explicit and to simulate the optimal strategy of the insiders in some examples of side-information. We compare those optimal strategies, depending on the type of side-information
Ramsey Rule with Progressive utility and Long Term Affine Yields Curves
The purpose of this paper relies on the study of long term affine yield
curves modeling. It is inspired by the Ramsey rule of the economic literature,
that links discount rate and marginal utility of aggregate optimal consumption.
For such a long maturity modelization, the possibility of adjusting preferences
to new economic information is crucial, justifying the use of progressive
utility. This paper studies, in a framework with affine factors, the yield
curve given from the Ramsey rule. It first characterizes consistent progressive
utility of investment and consumption, given the optimal wealth and consumption
processes. A special attention is paid to utilities associated with linear
optimal processes with respect to their initial conditions, which is for
example the case of power progressive utilities. Those utilities are the basis
point to construct other progressive utilities generating non linear optimal
processes but leading yet to still tractable computations. This is of
particular interest to study the impact of initial wealth on yield curves.Comment: arXiv admin note: substantial text overlap with arXiv:1404.189
Ramsey Rule with Progressive Utility in Long Term Yield Curves Modeling
The purpose of this paper relies on the study of long term yield curves
modeling. Inspired by the economic litterature, it provides a financial
interpretation of the Ramsey rule that links discount rate and marginal utility
of aggregate optimal consumption. For such a long maturity modelization, the
possibility of adjusting preferences to new economic information is crucial.
Thus, after recalling some important properties on progressive utility, this
paper first provides an extension of the notion of a consistent progressive
utility to a consistent pair of progressive utilities of investment and
consumption. An optimality condition is that the utility from the wealth
satisfies a second order SPDE of HJB type involving the Fenchel-Legendre
transform of the utility from consumption. This SPDE is solved in order to give
a full characterization of this class of consistent progressive pair of
utilities. An application of this results is to revisit the classical backward
optimization problem in the light of progressive utility theory, emphasizing
intertemporal-consistency issue. Then we study the dynamics of the marginal
utility yield curve, and give example with backward and progressive power
utilities
Credit Risk with asymmetric information on the default threshold
International audienceWe study the impact of asymmetric information in a general credit model where the default is triggered when a fundamental diff usion process of the firm passes below a random threshold. Inspired by some recent technical default events during the fi nancial crisis, we consider the role of the firm's managers who choose the level of the default threshold and have complete information. However, other investors on the market only have partial observations either on the process or on the threshold. We specify the accessible information for di fferent types of investors. Besides the framework of progressive enlargement of fi ltrations usually adopted in the credit risk modelling, we also combine the results on initial enlargement of filtrations to deal with the uncertainty on the default threshold. We consider several types of investors who have di fferent information levels and we compute the default probabilities in each case. Numerical illustrations show that the insiders who have extra information on the default threshold obtain better estimations of the default probability compared to the standard market investors
Explicit correlations for the Hawkes processes
In this paper we fill a gap in the literature by providing exact and explicit
expressions for the correlation of general Hawkes processes together with its
intensity process. Our methodology relies on the Poisson imbedding
representation and on recent findings on Malliavin calculus and pseudo-chaotic
representation for counting processes
Information Asymmetry in Pricing of Credit Derivatives
We study the pricing of credit derivatives with asymmetric information. The managers have complete information on the value process of the firm and on the default threshold, while the investors on the market have only partial observations, especially about the default threshold. Different information structures are distinguished using the framework of enlargement of filtrations. We specify risk neutral probabilities and we evaluate default sensitive contingent claims in these cases.
Optimal stopping contract for Public Private Partnerships under moral hazard
This paper studies optimal Public Private Partnerships contract between a
public entity and a consortium, in continuous-time and with a continuous
payment, with the possibility for the public to stop the contract. The public
("she") pays a continuous rent to the consortium ("he"), while the latter gives
a best response characterized by his effort. This effect impacts the drift of
the social welfare, until a terminal date decided by the public when she stops
the contract and gives compensation to the consortium. Usually, the public can
not observe the effort done by the consortium, leading to a principal agent's
problem with moral hazard. We solve this optimal stochastic control with
optimal stopping problem in this context of moral hazard. The public value
function is characterized by the solution of an associated Hamilton Jacobi
Bellman Variational Inequality. The public value function and the optimal
effort and rent processes are computed numerically by using the Howard
algorithm. In particular, the impact of the social welfare's volatility on the
optimal contract is studied
Understanding, Modeling and Managing Longevity Risk: Key Issues and Main Challenges
This article investigates the latest developments in longevity risk modelling, and explores the key risk management challenges for both the financial and insurance industries. The article discusses key definitions that are crucial for the enhancement of the way longevity risk is understood; providing a global view of the practical issues for longevity-linked insurance and pension products that have evolved concurrently with the steady increase in life expectancy since 1960s. In addition, the article frames the recent and forthcoming developments that are expected to action industry-wide changes as more effective regulation, designed to better assess and efficiently manage inherited risks, is adopted. Simultaneously, the evolution of longevity is intensifying the need for capital markets to be used to manage and transfer the risk through what are known as Insurance-Linked Securities (ILS). Thus, the article will examine the emerging scenarios, and will finally highlight some important potential developments for longevity risk management from a financial perspective with reference to the most relevant modelling and pricing practices in the banking industry.Longevity Risk ; securitization ; risk transfer ; incomplete market ; life insurance ; stochastic mortality ; pensions ; long term interest rate ; regulation ; population dynamics
- …