Related papers: A new market model in the large volatility case
Risk-neutral pricing dictates that the discounted derivative price is a martingale in a measure equivalent to the economic measure. The residual ambiguity for incomplete markets is here resolved by minimising the entropy of the price…
Bielecki and Rutkowski (2014) introduced and studied a generic nonlinear market model, which includes several risky assets, multiple funding accounts and margin accounts. In this paper, we examine the pricing and hedging of contract both…
This article is the second one in a series on the use of scaling invariance in finance. In the first article (cond-mat/9906048), we introduced a new formalism for the pricing of derivative securities, which focusses on tradable objects…
We calibrate and test various variants of field theory models of the interest rate with data from eurodollars futures. A model based on a simple psychological factor are seen to provide the best fit to the market. We make a model…
Pricing decisions are often made when market information is still poor. In turn, existing theoretical models often reason about the response of optimal prices to changing market characteristics without exploiting all available information…
Mathematical models for financial asset prices which include, for example, stochastic volatility or jumps are incomplete in that derivative securities are generally not replicable by trading in the underlying. In earlier work (2004) the…
We introduce a class of randomly time-changed fast mean-reverting stochastic volatility models and, using spectral theory and singular perturbation techniques, we derive an approximation for the prices of European options in this setting.…
How to compute (super) hedging costs in rather general fi- nancial market models with transaction costs in discrete-time ? Despite the huge literature on this topic, most of results are characterizations of the super-hedging prices while it…
Biondi et al. (2012) develop an analytical model to examine the emergent dynamic properties of share market price formation over time, capable to capture important stylized facts. These latter properties prove to be sensitive to regulatory…
The development of new methods and representations for temporal decision-making requires a principled basis for characterizing and measuring the flexibility of decision strategies in the face of uncertainty. Our goal in this paper is to…
Game-theoretic models relevant for computer science applications usually feature a large number of players. The goal of this paper is to develop an analytical framework for bounding the price of anarchy in such models. We demonstrate the…
A general market model with memory is considered in terms of stochastic functional differential equations. We aim at representation formulae for the sensitivity analysis of the dependence of option prices on the memory. This implies a…
Bielecki and Rutkowski (2014) introduced and studied a generic nonlinear market model, which includes several risky assets, multiple funding accounts and margin accounts. In this paper, we examine the pricing and hedging of contract both…
We investigate the random walk of prices by developing a simple model relating the properties of the signs and absolute values of individual price changes to the diffusion rate (volatility) of prices at longer time scales. We show that this…
In the context of Risk Neutral Pricing theory, we consider the classic problem of calibrating a martingale over $\mathbb{R}^n$ to a finite number of marginals thereof, or more practically, to prices of an arbitrary finite set of (joint)…
In Electricity markets, illiquidity, transaction costs and market price characteristics prevent managers to replicate exactly contracts. A residual risk is always present and the hedging strategy depends on a risk criterion chosen. We…
Duality for robust hedging with proportional transaction costs of path dependent European options is obtained in a discrete time financial market with one risky asset. Investor's portfolio consists of a dynamically traded stock and a static…
We introduce and study a non-equilibrium continuous-time dynamical model of the price of a single asset traded by a population of heterogeneous interacting agents in the presence of uncertainty and regulatory constraints. The model takes…
Volatility is the canonical measure of financial risk, a role largely inherited from Modern Portfolio Theory. Yet, its universality rests on restrictive efficiency assumptions that render volatility, at best, an incomplete proxy for true…
The duality between the robust (or equivalently, model independent) hedging of path dependent European options and a martingale optimal transport problem is proved. The financial market is modeled through a risky asset whose price is only…