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This paper includes an original self contained proof of well-posedness of an initial-boundary value problem involving a non-local parabolic PDE which naturally arises in the study of derivative pricing in a generalized market model. We call…
In this letter, I consider the issue of pricing risky debt by following Merton's approach. I generalize Merton's results to the case where the interest rate is modeled by the CIR term structure. Exact closed forms are provided for the risky…
We give a description of the structure of finite Morse index solutions to two free boundary problems in $\mathbb{R}^2$. These free boundary problems are models of phase transition and they are closely related to minimal hypersurfaces. We…
We present three models of stock price with time-dependent interest rate, dividend yield, and volatility, respectively, that allow for explicit forms of the optimal exercise boundary of the finite maturity American put option. The optimal…
This paper considers an optimal life insurance for a householder subject to mortality risk. The household receives a wage income continuously, which is terminated by unexpected (premature) loss of earning power or (planned and intended)…
This paper gives an arbitrage-free prediction for future prices of an arbitrary co-terminal set of options with a given maturity, based on the observed time series of these option prices. The statistical analysis of such a multi-dimensional…
We consider equations of the form $\Delta u +\lambda^2 V(x)e^{\,u}=\rho$ in various two dimensional settings. We assume that $V>0$ is a given function, $\lambda>0$ is a small parameter and $\rho=\mathcal O(1)$ or $\rho\to +\infty$ as…
We develop robust pricing and hedging of a weighted variance swap when market prices for a finite number of co--maturing put options are given. We assume the given prices do not admit arbitrage and deduce no-arbitrage bounds on the weighted…
This paper formulates a model of utility for a continuous time framework that captures the decision-maker's concern with ambiguity about both volatility and drift. Corresponding extensions of some basic results in asset pricing theory are…
In this work we consider three problems of the standard market approach to pricing of credit index options: the definition of the index spread is not valid in general, the usually considered payoff leads to a pricing which is not always…
Moving horizon estimation (MHE) is a widely studied state estimation approach in several practical applications. In the MHE problem, the state estimates are obtained via the solution of an approximated nonlinear optimization problem.…
We consider the classical problem of building an arbitrage-free implied volatility surface from bid-ask quotes. We design a fast numerical procedure, for which we prove the convergence, based on the Sinkhorn algorithm that has been recently…
We consider the initial boundary value problem to equations of motion of an inextensible hanging string of finite length under the action of the gravity. We also consider the problem in the case without any external forces. In this problem,…
In this paper, we study the finite-horizon problem of an economic agent's optimal consumption, investment, and job-switching decisions. The key new feature of our model is that the job-switching cost is time-varying. This extension leads to…
We consider a financial market in discrete time and study pricing and hedging conditional on the information available up to an arbitrary point in time. In this conditional framework, we determine the structure of arbitrage-free prices.…
We design receding horizon control strategies for stochastic discrete-time linear systems with additive (possibly) unbounded disturbances, while obeying hard bounds on the control inputs. We pose the problem of selecting an appropriate…
In this work, we investigate the continuity of the free boundary in a class of elliptic problems, with Neuman boundary condition. The main idea is a change of variable that allows us to reduce the problem to the one studied in [14].
We consider an irreversible investment problem under incomplete information, where the investor decides whether and when to make investments in a project. Upon investment, the investor acquires previously hidden information from the…
In the paper we consider the infinite horizon control problems on the interval with free right-hand endpoint. We obtain the necessary conditions of strict optimality. The method of the proof actually follows the classic paper by Halkin, and…
This paper investigates the moral hazard problem in finite horizon with both continuous and lump-sum payments, involving a time-inconsistent sophisticated agent and a standard utility maximiser principal. Building upon the so-called dynamic…