Related papers: Robust pricing and hedging of double no-touch opti…
Option pricing is the most elemental challenge of mathematical finance. Knowledge of the prices of options at every strike is equivalent to knowing the entire pricing distribution for a security, as derivatives contingent on the security…
In a discrete time setting, we study the central problem of giving a fair price to some financial product. For several decades, the no-arbitrage conditions and the martingale measures have played a major role for solving this problem. We…
Pricing financial or real options with arbitrary payoffs in regime-switching models is an important problem in finance. Mathematically, it is to solve, under certain standard assumptions, a general form of optimal stopping problems in…
The pricing and hedging of a general class of options (including American, Bermudan and European options) on multiple assets are studied in the context of currency markets where trading is subject to proportional transaction costs, and…
Improved bounds on the copula of a bivariate random vector are computed when partial information is available, such as the values of the copula on a given subset of $[0,1]^2$, or the value of a functional of the copula, monotone with…
We compare static arbitrage price bounds on basket calls, i.e. bounds that only involve buy-and-hold trading strategies, with the price range obtained within a multi-variate generalization of the Black-Scholes model. While there is no gap…
We construct an empirically founded model of a repo trade intermediated by two broker-dealers and prove multiple equilibrium and the existence of equilibrium at the joint profit maximizing volume of trade. We then present a smart contract…
Given a finite set of European call option prices on a single underlying, we want to know when there is a market model which is consistent with these prices. In contrast to previous studies, we allow models where the underlying trades at a…
In this paper we introduce a deep learning method for pricing and hedging American-style options. It first computes a candidate optimal stopping policy. From there it derives a lower bound for the price. Then it calculates an upper bound, a…
We study the range of prices at which a rational agent should contemplate transacting a financial contract outside a given securities market. Trading is subject to nonproportional transaction costs and portfolio constraints and full…
We present an algorithm producing a dynamic non-self-financing hedging strategy in an incomplete market corresponding to investor-relevant risk criterion. The optimization is a two stage process that first determines admissible model…
We use a continuous version of the standard deviation premium principle for pricing in incomplete equity markets by assuming that the investor issuing an unhedgeable derivative security requires compensation for this risk in the form of a…
Assuming that price of the underlying stock is moving in range bound, the Black-Scholes formula for options pricing supports a separation of variables. The resulting time-independent equation is solved employing different behavior of the…
We consider a portfolio with call option and the corresponding underlying asset under the standard assumption that stock-market price represents a random variable with lognormal distribution. Minimizing the variance (hedging risk) of the…
We derive the arbitrage gains or, equivalently, Loss Versus Rebalancing (LVR) for arbitrage between \textit{two imperfectly liquid} markets, extending prior work that assumes the existence of an infinitely liquid reference market. Our…
In this paper we demonstrate both theoretically as well as numerically that neural networks can detect model-free static arbitrage opportunities whenever the market admits some. Due to the use of neural networks, our method can be applied…
This paper develops a comprehensive theoretical framework that imports concepts from stochastic thermodynamics to model price impact and characterize the feasibility of round-trip arbitrage in financial markets. A trading cycle is treated…
The approach that allows find European option price on the assumption of hedging at discrete times is proposed. The routine allows find the option price not for lognormal distribution functions of underlying asset only but for wide enough…
We investigate the problem of pricing and hedging derivatives of Electricity Futures contract when the underlying asset is not available. We propose to use a cross hedging strategy based on the Futures contract covering the larger delivery…
We consider a discrete-time incomplete multi-asset market model with continuous price jumps. For a wide class of contingent claims, including European basket call options, we compute the bounds of the interval containing the no-arbitrage…