Related papers: No-arbitrage pricing under cross-ownership
We consider a Black-Scholes type equation arising on a pricing model for a multi-asset option with general transaction costs. The pioneering work of Leland is thus extended in two different ways: on the one hand, the problem is…
An asset pricing model using long-run capital share growth risk has recently been found to successfully explain U.S. stock returns. Our paper adopts a recursive preference utility framework to derive an heterogeneous asset pricing model…
In a discrete-time setting, we study arbitrage concepts in the presence of convex trading constraints. We show that solvability of portfolio optimization problems is equivalent to absence of arbitrage of the first kind, a condition weaker…
A well known result in stochastic analysis reads as follows: for an $\mathbb{R}$-valued super-martingale $X = (X_t)_{0\leq t \leq T}$ such that the terminal value $X_T$ is non-negative, we have that the entire process $X$ is non-negative.…
Computing market equilibria is an important practical problem for market design, for example in fair division of items. However, computing equilibria requires large amounts of information (typically the valuation of every buyer for every…
The paper studies the concepts of hedging and arbitrage in a non probabilistic framework. It provides conditions for non probabilistic arbitrage based on the topological structure of the trajectory space and makes connections with the usual…
The paper reviews origins of the approach to pricing derivatives post-crisis by following three papers that have received wide acceptance from practitioners as the theoretical foundations for it - [Piterbarg 2010], [Burgard and Kjaer 2010]…
We consider classical Merton problem of terminal wealth maximization in finite horizon. We assume that the drift of the stock is following Ornstein-Uhlenbeck process and the volatility of it is following GARCH(1) process. In particular,…
In commodity markets the convergence of futures towards spot prices, at the expiration of the contract, is usually justified by no-arbitrage arguments. In this article, we propose an alternative approach that relies on the expected profit…
A concept of martingale-fair index of return, consistent with Arbitrage Free Pricing Theory, is introduced. An explicit formula for the average rate of return of a group of investment/pension funds in a discrete time stochastic model is…
We consider a multi-asset incomplete model of the financial market, where each of $m\geq 2$ risky assets follows the binomial dynamics, and no assumptions are made on the joint distribution of the risky asset price processes. We provide…
In this paper, we analyze the problem of how to adapt the concept of priority to situations where several perfectly divisible resources have to be allocated among certain set of agents that have exactly one claim which is used for all…
We provide a practical superhedging strategy for the pricing and hedging of the No-Negative-Equity-Guarantee (NNEG) found in Equity-Release Mortgages (ERMs), or reverse mortgages, using a discrete-time model. In contrast to many papers on…
We consider infinite dimensional optimization problems motivated by the financial model called Arbitrage Pricing Theory. Using probabilistic and functional analytic tools, we provide a dual characterization of the super-replication cost.…
We develop the fundamental theorem of asset pricing in a probability-free infinite-dimensional setup. We replace the usual assumption of a prior probability by a certain continuity property in the state variable. Probabilities enter then…
Portfolio selection in the periodic investment of securities modeled by a multivariate Merton model with dependent jumps is considered. The optimization framework is designed to maximize expected terminal wealth when portfolio risk is…
We study market-consistent valuation of liability cash flows motivated by current regulatory frameworks for the insurance industry. Building on the theory on multiple-prior optimal stopping we propose a valuation functional with sound…
This paper concerns an insurance firm's surplus process observed at renewal inspection times, with a focus on assessing the probability of the surplus level dropping below zero. For various types of inter-inspection time distributions, an…
Based on a criterion of mathematical simplicity and consistency with empirical market data, a stochastic volatility model has been obtained with the volatility process driven by fractional noise. Depending on whether the stochasticity…
In a continuous-time model with multiple assets described by c\`{a}dl\`{a}g processes, this paper characterizes superhedging prices, absence of arbitrage, and utility maximizing strategies, under general frictions that make execution prices…