Related papers: No-Free-Lunch equivalences for exponential Levy mo…
The Free Lunch Principle: Nature thrives on freebies. She chooses nothing, and no one helps Her. She must use canonical mathematical structures as there is no one to tell Her otherwise. With this I show where variational principles are…
The No Free Lunch (NFL) theorem for search and optimisation states that averaged across all possible objective functions on a fixed search space, all search algorithms perform equally well. Several refined versions of the theorem find a…
We study a financial model with a non-trivial price impact effect. In this model we consider the interaction of a large investor trading in an illiquid security, and a market maker who is quoting prices for this security. We assume that the…
The No Free Lunch (NFL) theorem guarantees equal average performance only under uniform sampling of a function space closed under permutation (c.u.p.). We ask when this averaging ceases to reflect what benchmarking actually reports. We…
We study markets with no riskless (safe) asset. We derive the corresponding Black-Scholes-Merton option pricing equations for markets where there are only risky assets which have the following price dynamics: (i) continuous diffusions; (ii)…
General equilibrium, the cornerstone of modern economics and finance, rests on assumptions many markets do not meet. Spectrum auctions, electricity markets, and cap-and-trade programs for resource rights often feature non-convexities in…
This paper considers general term structure models like the ones appearing in portfolio credit risk modelling or life insurance. We give a general model starting from families of forward rates driven by infinitely many Brownian motions and…
We start with the idea that open quantum systems can be used to represent financial markets by modelling events from the external environment and their impact on the market price. We show how to characterize distinct orbits of the time…
The No Free Lunch theorems prove that under a uniform distribution over induction problems (search problems or learning problems), all induction algorithms perform equally. As I discuss in this chapter, the importance of the theorems arises…
We consider the problem of maximizing expected utility from consumption in a constrained incomplete semimartingale market with a random endowment process, and establish a general existence and uniqueness result using techniques from convex…
We introduce, in continuous time, an axiomatic approach to assign to any financial position a dynamic ask (resp. bid) price process. Taking into account both transaction costs and liquidity risk this leads to the convexity (resp. concavity)…
Exponential L\'evy processes can be used to model the evolution of various financial variables such as FX rates, stock prices, etc. Considerable efforts have been devoted to pricing derivatives written on underliers governed by such…
The non-gaussianity of processes observed in financial markets and relatively good performance of gaussian models can be reconciled by replacing the Brownian motion with Levy processes whose Levy densities decay as exp(-lambda|x|) or…
This paper provides a discrete time LIBOR analog, which can be used for arbitrage-free discretization of Levy LIBOR models or discrete approximation of continuous time LIBOR market models. Using the work of Eberlein and Oezkan as an…
In this note, we study the infinite-dimensional conditional laws of Brownian semistationary processes. Motivated by the fact that these processes are typically not semimartingales, we present sufficient conditions ensuring that a Brownian…
In this work it is shown that scale free tails in metabolic flux distributions inferred from realistic large scale models can be simply an artefact due to reactions involved in thermodynamically unfeasible cycles, that are unbounded by…
We consider the problem of determining the L\'evy exponent in a L\'evy model for asset prices given the price data of derivatives. The model, formulated under the real-world measure $\mathbb P$, consists of a pricing kernel…
Given a stock price process, we analyse the potential of arbitrage by insiders in a context of short-selling prohibitions. We introduce the notion of minimal supermartingale measure, and we analyse its properties in connection to the…
We establish an explicit pricing formula for the class of L\'evy-stable models with maximal negative asymmetry (Log-L\'evy model with finite moments and stability parameter $1<\alpha\leq 2$) in the form of rapidly converging series. The…
We study a stochastic multiplicative system composed of finite asynchronous elements to describe the wealth evolution in financial markets. We find that the wealth fluctuations or returns of this system can be described by a walk with…