The 4th KAFE-JAFEE International Conference
ABSTRACTS
August 21, 2021

Blockchain-based Academic Journals
Kyoung Jin Choi,∗,1Jaevin Park2

Inspired by the recent computer science literature, we study the economic
implications of blockchain-based academic journals in which authors andreferees are individually incentivized. We construct a model in which thejournal publishes qualified papers under two types of information asymmetry: paper quality and type of referees. We investigate the conditions underwhich equilibrium in decentralization exists or fails and leads to a better
outcome. The results from the model can be widely applied to informationproduction processes in funding decisions, loan inspections, and credit ratings. Our research helps to understand how to design an incentive structure
for information providers.

1
2Haskayne School of Business, University of Calgary, Calgary, Alberta, Canada.
Department of Economics, Soongsil University, Seoul, Korea.

1

Stochastic approximation in adaptive Monte Carlovariance reduction
Rei-ichiro Kawai∗,1

We discuss an application of stochastic approximation algorithms in a forward problem, rather than inverse problems of great interest to the Machine
Learning community. The forward problem here is a general framework ofMonte Carlo variance reduction adaptively updating the variance reduction
parameters by stochastic approximation. To address the extreme sensitivityof performance to the choice of learning rates, we mainly focus on the case offinite computing budget and derive constant learning rates via minimizationof an upper bound of the theoretical variance of the empirical mean, rather
than minimization of the objective function as in the existing stochastic
gradient framework. We present numerical results to support the theoretical findings and to illustrate the eﬀectiveness of the proposed algorithm,
especially the robustness of the performance to the choice of learning rates.

1University of Tokyo

2

Are suspicious activity reporting requirements forcryptocurrency exchanges eﬀective?
Daehan Kim,∗,1

Mehmet Huseyin Bilgin,2Doojin Ryu3

This study analyzes the impact of a newly emerging type of anti-money
laundering regulation that obligates cryptocurrency exchanges to report suspicious transactions to financial authorities. We build a theoretical modelof the reporting decision structure of a private bank or cryptocurrency exchange and show that an inferior ability to detect money laundering (ML)
increases the ratio of reported transactions. If a representative money launderer makes an optimal portfolio choice, then this ratio increases further.
Our findings suggest that cryptocurrency exchanges will exhibit more severe
excessive reporting behavior under this regulation relative to private banks.
We attribute this result to cryptocurrency exchanges inferior ML detection
abilities and their proximity to the underground economy.
Keywords : Cryptocurrency; Cryptocurrency Exchange; Money Laundering;
Portfolio Choice; Financial Regulation

JEL classification : E26, G11, K42

1

College of Economics, Sungkyunkwan University, Seoul, Republic of Korea.
Faculty of Political Sciences, Istanbul Medeniyet University, Istanbul, Turkey.
3
College of Economics, Sungkyunkwan University, Seoul, Republic of Korea. e-mail:2

sharpjin@skku.edu

3

The Thermodynamic Approach to Whole-Life
Insurance: A Method for Evaluation of Surrender
RiskYuuki Ida∗,1

We introduce a collective model for life insurance where the heterogeneity ofeach insured, including the health state, is modeled by a diﬀusion process.
This model is influenced by concepts in statistical mechanics. Using theproposed framework, one can describe the total pay-oﬀ as a functional of thediﬀusion process, which can be used to derive a level premium that evaluates
the risk of lapses due to the so-called adverse selection. Two numericallytractable models are presented to exemplify the flexibility of the proposedframework.
Joint work with Jiro Akahori, Maho Nishida, and Shuji Tamada.

1

Ritsumeikan University4Equilibrium multi-agent model withheterogeneous views on fundamental risks
Keisuke Kizaki1 , Taiga Saito∗,2 , Akihiko Takahashi3

In this talk, we present an equilibrium-based asset pricing model incorporating market sentiments, where multi-agents have heterogeneous (optimistic,pessimistic, neutral) views on fundamental risks represented by Brownian
motions. Each agent maximizes its expected utility on consumption under its
subjective probability measure, reflecting its heterogeneous views on fundamental risks. Specifically, we formulate the optimal consumption and portfolio problem with a choice of a probability measure. Moreover, we provide
an expression of the state-price density process that includes informationon the interest rate and the market price of risk in equilibrium. Finally, we
present a numerical example on pricing zero-coupon bonds, which shows theeﬀects of the agents’ heterogeneous views on the term structure of interestrates.

1

Mizuho-DL Financial Technology
University of Tokyo
3
University of Tokyo25

Eﬀect of the elderly on household’s financialtransactions: Evidence from Japan and Korea
Young-Min Kim∗,1Understanding the eﬀect of the elderly on the household’s financial transaction has become more important as the elderly population and their need
for wealth during retirement and beyond increase.
We investigate the eﬀect of the elderly demography on the household’s
financial transactions in terms of size and growth in Japan and Korea, who
are facing an increasing aging population.
The main findings are as follows: First, the size (or proportion) of those
aged over 70 and 80 has a relatively more significant eﬀect on the financialtransactions in Japan and Korea, respectively. Second, the growth rate ofthose aged 60 has a significant eﬀect on the household’s financial transactions in Japan while the growth rate of 80+ has a more significant eﬀectin Korea. Third, the interaction between the size and growth of those in
their 60s and 80s+ has the most significant eﬀect on the household’s financial transactions in Japan and Korea, respectively. Also, the interaction
between the growing elderly population and life expectancy has no eﬀect on
the financial transactions in Japan while it has a significant eﬀect in Korea.
The interactions indicate that the demographic size of the elderly has moreof an eﬀect in Japan while the growth rate has more of an eﬀect in Korea.
The evidence from Japan and Korea gives implications to many othercountries who are currently going through changes in their demography.
Keywords : The elderly, household, financial transaction, demography, life
expectancy.

1

Department of Regional Economics, Kangwon National University, Korea

6

Risk models for the Japanese double-debt problem
Yuri Imamura∗,1

Inspired by the classical collective insurance risk model, we introduce a risk
model to describe the evolution of a ”collective” mortgage repayment in amarket in which, in case of natural disasters, the mortgagor is exempt topay the remaining loan. The model is motivated by the so-called Japanese
double-debt problem, which describes the opposite phenomenon, in which
a mortgagor still has to pay the remaining loan, although the house wasdestroyed by a natural disaster, for instance an earthquake. We show thatby introducing a very small ”insurance” premium in the loan repayment,
the probability that the bank will recover its money. We calculate this probability explicitly, in a few concrete scenarios.
This is joint work with Jiro Akahori (Ritsumeikan University), Corina
Constantinescu (University of Liverpool) and Hai-Ha Pham（InternationalUniversity, Vietnam - National University HCM City).

1

Kanazawa University

7

Convergence rates of large-time sensitivities with
the Hansen–Scheinkman decomposition
Hyungbin Park∗,1

This work investigates the large-time asymptotic behavior of the sensitivities
of cash flows. In quantitative finance, the price of a cash flow is expressedin terms of a pricing operator of a Markov diﬀusion process. We study theextent to which the pricing operator is aﬀected by small changes of the underlying Markov diﬀusion. The main idea is a partial diﬀerential equation(PDE) representation of the pricing operator by incorporating the Hansen–
Scheinkman decomposition method. The sensitivities of the cash flows andtheir large-time convergence rates can be represented via simple expressions in terms of eigenvalues and eigenfunctions of the pricing operator. Inaddition, we discuss the application of our results to three practical problems: utility maximization, entropic risk measures, and bond prices. Finally,
as examples, explicit results for several market models such as the Cox–Ingersoll–Ross (CIR) model, 3/2 model and constant elasticity of variance(CEV) model are presented.

1

Department of Mathematical Sciences, Seoul National University, Seoul, Korea

8Tempered Stable Processes with Time-Varying
Exponential Tails
Young Shin Kim,∗,1Kum-Hwan Roh,2Raphael Douady3

In this paper, we introduce a new time series model with a stochastic exponential tail. This model is constructed based on the Normal Tempered Stable
distribution with a time-varying parameter. It captures the stochastic exponential tail, which generates the volatility smile eﬀect and volatility term
structure in option pricing. Moreover, the model describes the time-varying
volatility of volatility. The model empirically indicates the stochastic skewness and stochastic kurtosis in the S&P 500 index return data. We present
the Monte-Carlo simulation technique for the parameter calibration of themodel for the S&P 500 option prices. We see that the stochastic exponential
tail improves the calibration performance.
Keywords : Option pricing, Stochastic exponential tail, Volatility of volatility. Normal tempered stable distribution, Levy process.

JEL classification : C15, C22, G13, G17

1

CollegeofBusiness,Stonyaaron.kim@stonybrook.edu
2
Department of Mathematics,

Brook

University,Hannam

NewUniversity,York,USA.

e-mail:Daejeon,Korea.

e-mail:khroh@hnu.kr
3
CNRS, Paris 1 Pantheon-Sorbonne University, France. e-mail: rdouady@gmail.com

9A Gaussian Kusuoka approximation andapplication to deep learning-based numericalmethod for high-dimensional PDEs
Toshihiro Yamada∗,1We show a new second order Gaussian Kusuoka approximation without solving randomized ODEs. The proposed approximation based on operator splitting and Stratonovich calculus provides a simple algorithm with polynomialsof Brownian motion. As applications, deep learning-based numerical schemes
are introduced for high-dimensional linear and nonlinear PDEs which can be
implemented without suﬀering from the curse of dimensionality. Numericalexamples for 100-dimensional models in financial mathematics are shown todemonstrate the validity.
This talk is partially based on a joint work with Riu Naito.

1

Hitotsubashi University & Japan Science and Technology Agency (JST)10Time Stepwise Local Volatility
Hyuncheul Lim,∗,1

We propose a path integral method to construct a time stepwise local volatility for the stock index market under Dupire’s model. Our method is focusedon the pricing with the Monte Carlo method and taking the idea in “P.
Carr and L. Wu. Static hedging of standard options. Journal of Financial
Econometrics, 12:1–44, 2014”. We solve the problem of randomness of Monte
Carlo method by applying numerical integration. We reconstruct this task
as a matrix equation. Our method provides the analytic Jacobian and Hessian required by the nonlinear optimization solver, resulting in stable andfast calculations.

1

Department of Mathematics, Chonnam National University, Gwangju 61186, Republicof Korea. e-mail: limhc@jnu.ac.kr

11

Exact simulation of multivariate Hawkes processwith jump-diﬀusion CIR intensity
Kazuhiro Yasuda∗,1

In this presentation, we consider exact simulation algorithm for multivariate
Hawkes process with jump-diﬀusion CIR intensity. Hawkes process is a selfexciting point process and was introduced by A. G. Hawkes in 1971. Since
then, it has been widely applied in several fields: seismic events, epidemic,
access number of web pages and so on. Recently, Hawkes process and its extended processes have been applied in finance and insurance problems likehigh-frequency trading, chain bankruptcy and generalization of the CramerLundberg model. Here we consider an extended multivariate Hawkes process
which has the jump-diﬀusion CIR intensity and provide its exact simulation algorithm which generates an unbiased sample path on computationalsimulation. Finally, we show accuracy of our algorithm through numericalsimulation.
This is a joint work with T. Yoshida (Hosei university).

1

Hosei University

12Computation of the Greeks for complicatedoptions
Tomonori Nakatsu∗,1

The Greeks are defined by the sensitivities of the price of derivatives withrespect to the change of market parameters. In the Black-Scholes model,
many closed form representations of the greeks are well known, but theproblem is not easy in general models. In this talk, we first show how tocompute the vega(sensitivity with respect to the change of volatility) for
options depending on the maximum of the price of underlying asset in ageneral model. Then, we show a formula to compute the delta(sensitivity
with respect to the change of the underlying price) for options depending
on stopping times. Finally, some formulas for the delta and vega for options
depending on the maximum of the underlying price are shown in a moregeneral model.

1

Shibaura Institute of Technology

13Market liquidity, domestic funding liquidity, andstock price synchronicity
Jinyoung Yu,∗,1

Doojin Ryu2

This study examines the role of local funding liquidity, beyond that of international funding liquidity, in shaping equity market liquidity. While theimprovement in either domestic or international funding supply generally
increases stock market trading volume, the eﬀect of local funding liquidity
is only significant for the firms with highly systematic or idiosyncratic stock
return dynamics. Among investor types, domestic individuals

trading for

idiosyncratic firms substantially increases as local funding supply becomesabundant, providing evidence against the relative synchronicity hypothesis.
Keywords : Domestic Funding liquidity; Emerging equity market; International funding liquidity; Market liquidity; Stock price synchronicity

JEL classification : G11, G12, G211
2

Department of Economics, Sungkyunkwan University, Seoul, Republic of Korea.
Department of Economics, Sungkyunkwan University, Seoul, Republic of Korea.

14

Non-zero-sum optimal stopping game with
continuous versus periodic observations
Kazutoshi Yamazaki∗,1

We introduce a new non-zero-sum optimal stopping game with asymmetric
information. Given a stochastic process modelling the value of an asset, one
player has full access to the information and observes the process completely
while the other player can access it only periodically at independent Poisson arrival times. The first one to stop receives a reward, while the otherone gets nothing. The reward function is diﬀerent for each player. We study
how each player balances the maximisation of gains against the maximisation of the likelihood of stopping before the opponent. Under the setting
driven by a L vy process with positive jumps, we explicitly construct a Nashequilibrium with values of the game written in terms of the scale function.
Numerical illustrations with put-option payoﬀs are also provided to study
the behaviours of the players

strategies as well as the quantification of thevalue of information.
Joint work with J. L. Perez (CIMAT) and N. Rodosthenous (QueenMary, University of London).

1Kansai University

15

Physical ETFs and Synthetic ETFs, What isReally Good?: Compensation channel of Synthetic
ETFs
Jinhwan Kim,∗,1Hoon Cho,2Sangik Seok3

This study examines the compensation channels of synthetic ETFs, whichhave additional risks compared to physical ETFs, in an eﬃcient market. We
analyze the diﬀerence in systematic liquidity risk between synthetic ETFs
and physical ETFs using the liquidity-adjusted capital asset pricing model(LCAPM). Our findings suggest that synthetic ETFs have a larger liquidity
risk than physical ETFs, and there is an additional risk premium. In addition, we analyze the tracking performance of ETFs by type, and find thatsynthetic ETFs have lower tracking error. In particular, synthetic ETFs’ superiority in tracking performance is more prominent in the liquidity shock
period than in the normal period. In summary, synthetic ETFs have significant compensation channels for additional risk in return and trackingperformance.

1College of Business, Korea Advanced Institute of Science and Technology, 85, Hoegi-ro, Dongdaemun-gu, Seoul 02455, Republic of Korea.
2
College of Business, Korea Advanced Institute of Science and Technology, 85, Hoegiro, Dongdaemun-gu, Seoul 02455, Republic of Korea.
3
College of Business, University of Ulsan, 93, Daehak-ro, Nam-gu, Ulsan 44610, Republic of Korea.

16