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We study a risk-sharing economy where an arbitrary number of heterogenous agents trades an arbitrary number of risky assets subject to quadratic transaction costs. For linear state dynamics, the forward-backward stochastic differential…
In this article, we consider the problem of equilibrium price formation in an incomplete securities market consisting of one major financial firm and a large number of minor firms. They carry out continuous trading via the securities…
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…
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…
We study utility indifference prices and optimal purchasing quantities for a contingent claim, in an incomplete semi-martingale market, in the presence of vanishing hedging errors and/or risk aversion. Assuming that the average indifference…
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…
Value adjustment of uncollateralized trades is determined within a risk-neutral pricing framework. When hedging such trades, investors cannot freely trade protection on their own name, thus facing an incomplete market. This fact is…
This paper is the continuation of "Pricing with coherent risk" and deals with further applications of coherent risk measures to problems of finance. First, we study the optimization problem. Three forms of this problem are considered.…
There are several aspects of data markets that distinguish them from a typical commodity market: asymmetric information, the non-rivalrous nature of data, and informational externalities. Formally, this gives rise to a new class of games…
We study a large economy in which firms cannot compute exact solutions to the non-linear equations that characterize the equilibrium price at which they can sell future output. Instead, firms use polynomial expansions to approximate prices.…
We consider a financial market in which traders potentially face restrictions in trading some of the available securities. Traders are heterogeneous with respect to their beliefs and risk profiles, and the market is assumed thin: traders…
This paper develops a dynamic equilibrium model where agents exhibit a strong form of belief heterogeneity: they disagree about zero probability events. It is shown that, somewhat surprisingly, equilibrium exists in this setting, and that…
Considering a simple economy, we derive a new Hamilton-Jacobi equation which is satisfied by the value of a ''bubble'' asset. We then show, by providing a rigorous mathematical analysis of this equation, that a unique non-zero stable…
We introduce a new class of combinatorial markets in which agents have covering constraints over resources required and are interested in delay minimization. Our market model is applicable to several settings including scheduling, cloud…
We perform a stability analysis for the utility maximization problem in a general semimartingale model where both liquid and illiquid assets (random endowments) are present. Small misspecifications of preferences (as modeled via expected…
We call an investment strategy survival, if an agent who uses it maintains a non-vanishing share of market wealth over the infinite time horizon. In a discrete-time multi-agent model with endogenous asset prices determined through a…
With model uncertainty characterized by a convex, possibly non-dominated set of probability measures, the agent minimizes the cost of hedging a path dependent contingent claim with given expected success ratio, in a discrete-time,…
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…
Consider an agent who enters a financial market on day t = 0 with an initial capital amount x. He invests this amount on stocks and the money market, and by day t = T, has generated a wealth W . He is given a convex class of probability…
This paper presents an optimal allocation problem in a financial market with one risk-free and one risky asset, when the market is driven by a stochastic market price of risk. We solve the problem in continuous time, for an investor with a…