Price mediated contagion through capital ratio requirements with VWAP liquidation prices [PDF]
arXiv, 2019 We develop a framework for price-mediated contagion in financial systems where banks are forced to liquidate assets to satisfy a risk-weight based capital adequacy requirement. In constructing this modeling framework, we introduce a two-tier pricing structure: the volume weighted average price that is obtained by any bank liquidating assets and the ...
arxiv
Pricing and Capital Allocation for Multiline Insurance Firms With Finite Assets in an Imperfect Market [PDF]
arXiv, 2020 We analyze multiline pricing and capital allocation in equilibrium no-arbitrage markets. Existing theories often assume a perfect complete market, but when pricing is linear, there is no diversification benefit from risk pooling and therefore no role for insurance companies.
arxiv
Continuous Equilibrium in Affine and Information-Based Capital Asset Pricing Models [PDF]
arXiv, 2012 We consider a class of generalized capital asset pricing models in continuous time with a finite number of agents and tradable securities. The securities may not be sufficient to span all sources of uncertainty. If the agents have exponential utility functions and the individual endowments are spanned by the securities, an equilibrium exists and the ...
arxiv
Hedging and Leveraging: Principal Portfolios of the Capital Asset Pricing Model [PDF]
arXiv, 2013 The principal portfolios of the standard Capital Asset Pricing Model (CAPM) are analyzed and found to have remarkable hedging and leveraging properties. Principal portfolios implement a recasting of any correlated asset set of N risky securities into an equivalent but uncorrelated set when short sales are allowed.
arxiv
Endogenous Representation of Asset Returns [PDF]
arXiv, 2020 Factor modeling of asset returns has been a dominant practice in investment science since the introduction of the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Theory (APT). The factors, which account for the systematic risk, are either specified or interpreted to be exogenous.
arxiv
Macroscopic theorem of the portfolio optimization problem with a risk-free asset [PDF]
arXiv, 2019 The investment risk minimization problem with budget and return constraints has been the subject of research using replica analysis but there are shortcomings in the extant literature. With respect to Tobin's separation theorem and the capital asset pricing model, it is necessary to investigate the implications of a risk-free asset and examine its ...
arxiv
A two-Factor Asset Pricing Model and the Fat Tail Distribution of Firm Sizes [PDF]
arXiv, 2007 In the standard equilibrium and/or arbitrage pricing framework, the value of any asset is uniquely specified from the belief that only the systematic risks need to be remunerated by the market. Here, we show that, even for arbitrary large economies when the distribution of the capitalization of firms is sufficiently heavy-tailed as is the case of real ...
arxiv
A probability-free and continuous-time explanation of the equity premium and CAPM [PDF]
arXiv, 2016 This paper gives yet another definition of game-theoretic probability in the context of continuous-time idealized financial markets. Without making any probabilistic assumptions (but assuming positive and continuous price paths), we obtain a simple expression for the equity premium and derive a version of the capital asset pricing model.
arxiv
An Asymmetric Capital Asset Pricing Model [PDF]
arXivProviding a measure of market risk is an important issue for investors and financial institutions. However, the existing models for this purpose are per definition symmetric. The current paper introduces an asymmetric capital asset pricing model for measurement of the market risk.
arxiv
The Effects of Leverage Requirements and Fire Sales on Financial Contagion via Asset Liquidation Strategies in Financial Networks [PDF]
arXiv, 2015 This paper provides a framework for modeling the financial system with multiple illiquid assets when liquidation of illiquid assets is caused by failure to meet a leverage requirement. This extends the network model of Cifuentes, Shin & Ferrucci (2005) which incorporates a single asset with fire sales and capital adequacy ratio.
arxiv