Related papers: Liquidity Risk, Price Impacts and the Replication …
The dynamics of a stock market with heterogeneous agents is discussed in the framework of a recently proposed spin model for the emergence of bubbles and crashes. We relate the log returns of stock prices to magnetization in the model and…
Based on the order flow data of a stock and its warrant, the immediate price impacts of market orders are estimated by two competitive models, the power-law model (PL model) and the logarithmic model (LG model). We find that the PL model is…
We study risk-sharing equilibria with general convex costs on the agents' trading rates. For an infinite-horizon model with linear state dynamics and exogenous volatilities, we prove that the equilibrium returns mean-revert around their…
The classical discrete time model of proportional transaction costs relies on the assumption that a feasible portfolio process has solvent increments at each step. We extend this setting in two directions, allowing for convex transaction…
A variance swap is a derivative with a path-dependent payoff which allows investors to take positions on the future variability of an asset. In the idealised setting of a continuously monitored variance swap written on an asset with…
This paper studies the links between the descriptions of macroeconomic variables and statistical moments of market trade, price, and return. The randomness of market trade values and volumes during the averaging interval {\Delta} results in…
A common assumption in financial engineering is that the market price for any derivative coincides with an objectively defined risk-neutral price - a plausible assumption only if traders collectively possess objective knowledge about the…
In this paper we provide a quantitative analysis to the concept of arbitrage, that allows to deal with model uncertainty without imposing the no-arbitrage condition. In markets that admit ``small arbitrage", we can still make sense of the…
A first attempt at obtaining market--directional information from a non--stationary solution of the dynamic equation "future price tends to the value that maximizes the number of shares traded per unit time" [1] is presented. We demonstrate…
In this note, we develop stock option price approximations for a model which takes both the risk o default and the stochastic volatility into account. We also let the intensity of defaults be influenced by the volatility. We show that it…
Locational Marginal Price (LMP) is a dual variable associated with supply-demand matching and represents the cost of delivering power to a particular location if the load at that location increases. In recent times it become more volatile…
We study an online market-making problem in which a learner sequentially posts bid and ask prices for a single asset while interacting with traders holding private valuations. Unlike existing online learning formulations that assume fully…
The goal of this paper is to disentangle the roles of volume and of participation rate in the price response of the market to a sequence of transactions. To do so, we are inspired the methodology introduced in arXiv:1402.1288,…
The paper studies sub and super-replication price bounds for contingent claims defined on general trajectory based market models. No prior probabilistic or topological assumptions are placed on the trajectory space, trading is assumed to…
We study the upper hedging price for contingent claims in market models with strong types of arbitrage: increasing profit, strong arbitrage, and arbitrage of the first kind. The existence of arbitrage may make the price smaller than if it…
The determination of acceptability prices of contingent claims requires the choice of a stochastic model for the underlying asset price dynamics. Given this model, optimal bid and ask prices can be found by stochastic optimization. However,…
We compare the predictions of the stationary Kyle model, a microfounded multi-step linear price impact model in which market prices forecast fundamentals through information encoded in the order flow, with those of the propagator model, a…
We study the problem of pricing under a Multinomial Logit model where we incorporate network effects over the consumer's decisions. We analyse both cases, when sellers compete or collaborate. In particular, we pay special attention to the…
One of the risks derived from selling long term policies that any insurance company has, arises from interest rates. In this paper we consider a general class of stochastic volatility models written in forward variance form. We also deal…
This paper considers utility indifference valuation of derivatives under model uncertainty and trading constraints, where the utility is formulated as an additive stochastic differential utility of both intertemporal consumption and…