Related papers: Diversity and relative arbitrage in equity markets
We take the holistic approach of computing an OTC claim value that incorporates credit and funding liquidity risks and their interplays, instead of forcing individual price adjustments: CVA, DVA, FVA, KVA. The resulting nonlinear…
We extend to the multi-asset case the framework of a discrete time model of a single asset financial market developed in Ghoulmie et al (2005). In particular, we focus on adaptive agents with threshold behavior allocating their resources…
We introduce a discrete binary tree for pricing contingent claims with the underlying security prices exhibiting history dependence characteristic of that induced by market microstructure phenomena. Example dependencies considered include…
This study proposes a new efficiency requirement, a minimal almost weak Pareto principle, which says that x is socially better than y whenever the only one individual never prefers y to x, and all the others prefers x to y. Then, I show…
We amend and extend the Chiarella model of financial markets to deal with arbitrary long-term value drifts in a consistent way. This allows us to improve upon existing calibration schemes, opening the possibility of calibrating individual…
Financial exchange operators cater to the needs of their users while simultaneously ensuring compliance with the financial regulations. In this work, we focus on the operators' commitment for fair treatment of all competing participants. We…
Portfolio diversification is a cornerstone of modern finance, while risk aversion is central to decision theory; both concepts are long-standing and foundational. We investigate their connections by studying how different forms of…
We study stochastic dominance between portfolios of independent and identically distributed (iid) extremely heavy-tailed (i.e., infinite-mean) Pareto random variables. With the notion of majorization order, we show that a more diversified…
We consider a version of large population games whose agents compete for resources using strategies with adaptable preferences. The games can be used to model economic markets, ecosystems or distributed control. Diversity of initial…
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)…
This paper studies convex duality in optimal investment and contingent claim valuation in markets where traded assets may be subject to nonlinear trading costs and portfolio constraints. Under fairly general conditions, the dual expressions…
We propose a probabilistic framework for pricing derivatives, which acknowledges that information and beliefs are subjective. Market prices can be translated into implied probabilities. In particular, futures imply returns for these implied…
It has been widely observed that capitalization-weighted indexes can be beaten by surprisingly simple, systematic investment strategies. Indeed, in the U.S. stock market, equal-weighted portfolios, random-weighted portfolios, and other…
We study the problem of optimal portfolio selection in an illiquid market with discrete order flow. In this market, bids and offers are not available at any time but trading occurs more frequently near a terminal horizon. The investor can…
The choice of admissible trading strategies in mathematical modelling of financial markets is a delicate issue, going back to Harrison and Kreps (1979). In the context of optimal portfolio selection with expected utility preferences this…
In two-sided markets, Myerson and Satterthwaite's impossibility theorem states that one can not maximize the gain-from-trade while also satisfying truthfulness, individual-rationality and no deficit. Attempts have been made to circumvent…
In an equity market model with "Knightian" uncertainty regarding the relative risk and covariance structure of its assets, we characterize in several ways the highest return relative to the market that can be achieved using nonanticipative…
This paper does not suppose a priori that the evolution of the price of a financial asset is a semimartingale. Since possible strategies of investors are self-financing, previous prices are forced to be finite quadratic variation processes.…
In this article we consider the infinite-horizon Merton investment-consumption problem in a constant-parameter Black - Scholes - Merton market for an agent with constant relative risk aversion R. The classical primal approach is to write…
Consider a discrete-time infinite horizon financial market model in which the logarithm of the stock price is a time discretization of a stochastic differential equation. Under conditions different from those given in a previous paper of…