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Things worth reading: 23rd May 2012

May 23, 2012 by skinnercm   Comments (0)

Things we're reading today include:


Blog Post: Falkenblog: Regulators Want More Money

May 23, 2012 by MoneyScience   Comments (0)

From the HuffPost: Two of the most important financial regulators in the country have a message for Congress: We need more money.And my 4-year old daughter wants a pony. Given we created a brand new financial regulator, the Consumer Financial Protection Bureau, and they plan to spend $448 million next year, why don't we wait until one of these regulators actually creates some kind of thoughtful, new, regulation. What do they think they can do with more money? What rule-breaking is...

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Published / Preprint: Time-Consistent Mean-Variance Portfolio Selection in Discrete and Continuous Time. (arXiv:1205.4748v1 [q-fin.PM])

May 23, 2012 by MoneyScience   Comments (0)

It is well known that mean-variance portfolio selection is a time-inconsistent optimal control problem in the sense that it does not satisfy Bellman's optimality principle and therefore the usual dynamic programming approach fails. We develop a time- consistent formulation of this problem, which is based on a local notion of optimality called local mean-variance efficiency, in a general semimartingale setting. We start in discrete time, where the formulation is straightforward, and then find...

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Published / Preprint: Dynamic Conic Finance: Pricing and Hedging in Market Models with Transaction Costs via Dynamic Coherent Acceptability Indices. (arXiv:1205.4790v1 [q-fin.RM])

May 23, 2012 by MoneyScience   Comments (0)

In this paper we present a theoretical framework for determining dynamic ask and bid prices of derivatives using the theory of dynamic coherent acceptability indices in discrete time. We prove a version of the First Fundamental Theorem of Asset Pricing using the dynamic coherent risk measures. We introduce the dynamic ask and bid prices of a derivative contract in markets with transaction costs. Based on these results, we derive a representation theorem for the dynamic bid and ask prices in...

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Published / Preprint: Time-Consistent and Market-Consistent Evaluations. (arXiv:1109.1749v3 [q-fin.PR] UPDATED)

May 23, 2012 by MoneyScience   Comments (0)

We consider evaluation methods for payoffs with an inherent financial risk as encountered for instance for portfolios held by pension funds and insurance companies. Pricing such payoffs in a way consistent to market prices typically involves combining actuarial techniques with methods from mathematical finance. We propose to extend standard actuarial principles by a new market-consistent evaluation procedure which we call `two step market evaluation.' This procedure preserves the structure of...

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