Related papers: Asymptotic Power Utility-Based Pricing and Hedging
Many methods for estimating integrated volatility and related functionals of semimartingales in the presence of jumps require specification of tuning parameters for their use in practice. In much of the available theory, tuning parameters…
We present here a regress later based Monte Carlo approach that uses neural networks for pricing high-dimensional contingent claims. The choice of specific architecture of the neural networks used in the proposed algorithm provides for…
By making use of martingale representations, we derive the asymptotic normality of particle filters in hidden Markov models and a relatively simple formula for their asymptotic variances. Although repeated resamplings result in complicated…
Benchmarks in the utility function have various interpretations, including performance guarantees and risk constraints in fund contracts and reference levels in cumulative prospect theory. In most literature, benchmarks are a deterministic…
Our main result is the martingale representations for Markov additive processes where the modulator is a Levy process. These processes have three parts: the modulator, the jumps of the ordinate triggered by the modulator, and the…
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 formulate and analyze an inverse problem using derivatives prices to obtain an implied filtering density on volatility's hidden state. Stochastic volatility is the unobserved state in a hidden Markov model (HMM) and can be tracked using…
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 paper, using the shrinkage-based approach for portfolio weights and modern results from random matrix theory we construct an effective procedure for testing the efficiency of the expected utility (EU) portfolio and discuss the…
In a Markovian framework, we consider the problem of finding the minimal initial value of a controlled process allowing to reach a stochastic target with a given level of expected loss. This question arises typically in approximate hedging…
In this paper, we present a realized range-based multipower variation theory, which can be used to estimate return variation and draw jump-robust inference about the diffusive volatility component, when a high-frequency record of asset…
We consider the pricing and hedging of exotic options in a model-independent set-up using \emph{shortfall risk and quantiles}. We assume that the marginal distributions at certain times are given. This is tantamount to calibrating the model…
With the rapid development of electricity markets, price volatility has significantly increased, making accurate forecasting crucial for power system operations and market decisions. Traditional linear models cannot capture the complex…
Sharp asymptotic lower bounds of the expected quadratic variation of discretization error in stochastic integration are given. The theory relies on inequalities for the kurtosis and skewness of a general random variable which are themselves…
Using a suitable change of probability measure, we obtain a novel Poisson series representation for the arbitrage- free price process of vulnerable contingent claims in a regime-switching market driven by an underlying continuous- time…
In this paper we propose a quadratic programming model that can be used for calculating the term structure of electricity prices while explicitly modeling startup costs of power plants. In contrast to other approaches presented in the…
We price European and American exchange options where the underlying asset prices are modelled using a Merton (1976) jump-diffusion with a common Heston (1993) stochastic volatility process. Pricing is performed under an equivalent…
We propose a general framework of European power option pricing under two different market assumptions about extended Vasic\v{e}k interest rate process and exponential Ornstein-Uhlenbeck asset process with continuous dividend as underlying,…
We propose a new model for electricity pricing based on the price cap principle. The particularity of the model is that the asset price is an exponential functional of a jump L\'evy process. This model can capture both mean reversion and…
$k$-inflation represents the most general single-field inflation, in which the perturbations usually obey an equation of motion with a time-dependent sound speed. In this paper, we study the observational predictions of the $k$-inflation by…