Related papers: Hedging in an equilibrium-based model for a large …
We study superhedging of contingent claims with physical delivery in a discrete-time market model with convex transaction costs. Our model extends Kabanov's currency market model by allowing for nonlinear illiquidity effects. We show that…
In this paper we derive robust super- and subhedging dualities for contingent claims that can depend on several underlying assets. In addition to strict super- and subhedging, we also consider relaxed versions which, instead of eliminating…
We consider the problem of hedging a European interest rate contingent claim with a portfolio of zero-coupon bonds and show that an HJM type Markovian model driven by an infinite number of sources of randomness does not have some of the…
In this paper we study the price dynamics in a simple model of financial markets with heterogeneous agents. We concentrate on how increases in the total number of active traders influences fluctuations of asset prices. We find that a…
This paper analyzes the role of money in asset markets characterized by search frictions. We develop a dynamic framework that brings together a model for illiquid financial assets `a la Duffie, Garleanu, and Pedersen, and a search-theoretic…
In this research, we have empirically investigated the key drivers affecting liquidity in equity markets. We illustrated how theoretical models, such as Kyle's model, of agents' interplay in the financial markets, are aligned with the…
Financial contagion has been widely recognized as a fundamental risk to the financial system. Particularly potent is price-mediated contagion, wherein forced liquidations by firms depress asset prices and propagate financial stress,…
The paper studies an oligopolistic equilibrium model of financial agents who aim to share their random endowments. The risk-sharing securities and their prices are endogenously determined as the outcome of a strategic game played among all…
One of the shortcomings of the Black and Scholes model on option pricing is the assumption that trading of the underlying asset does not affect the price of that asset. This assumption can be fulfilled only in perfectly liquid markets.…
Price-mediated contagion occurs when a positive feedback loop develops following a drop in asset prices which forces banks and other financial institutions to sell their holdings. Prior studies of such events fix the level of market…
The vast majority of market impact studies assess each product individually, and the interactions between the different order flows are disregarded. This strong approximation may lead to an underestimation of trading costs and possible…
In nature and human societies, the effects of homogeneous and heterogeneous characteristics on the evolution of collective behaviors are quite different from each other. It is of great importance to understand the underlying mechanisms of…
Market makers provide liquidity to other market participants: they propose prices at which they stand ready to buy and sell a wide variety of assets. They face a complex optimization problem with both static and dynamic components. They…
We study the formation of derivative prices in equilibrium between risk-neutral agents with heterogeneous beliefs about the dynamics of the underlying. Under the condition that the derivative cannot be shorted, we prove the existence of a…
We seek to utilize the nonextensive statistics to the microscopic modeling of the interacting many-investor dynamics that drive the price changes in a market. The statistics of price changes are known to be fit well by the Students-T and…
This paper reviews some of the phenomenological models which have been introduced to incorporate the scaling properties of financial data. It also illustrates a microscopic model, based on heterogeneous interacting agents, which provides a…
In this paper we study mean-variance hedging under the G-expectation framework. Our analysis is carried out by exploiting the G-martingale representation theorem and the related probabilistic tools, in a contin- uous financial market with…
In a fixed time horizon, appropriately executing a large amount of a particular asset -- meaning a considerable portion of the volume traded within this frame -- is challenging. Especially for illiquid or even highly liquid but also highly…
This paper deals with a stochastic order-driven market model with waiting costs, for order books with heterogenous traders. Offer and demand of liquidity drives price formation and traders anticipate future evolutions of the order book. The…
This essay discusses the advantages of a probabilistic agent-based approach to questions in theoretical economics, from the nature of economic agents, to the nature of the equilibria supported by their interactions. One idea we propose is…