Related papers: Utility based pricing and hedging of jump diffusio…
We propose a model for an insurance loss index and the claims process of a single insurance company holding a fraction of the total number of contracts that captures both ordinary losses and losses due to catastrophes. In this model we…
Path integral techniques for the pricing of financial options are mostly based on models that can be recast in terms of a Fokker-Planck differential equation and that, consequently, neglect jumps and only describe drift and diffusion. We…
Based on the concept of self-decomposable random variables we discuss the application of a model for a pair of dependent Poisson processes to energy facilities. Due to the resulting structure of the jump events we can see the…
We study the effect of drift in pure-jump transaction-level models for asset prices in continuous time, driven by point processes. The drift is as-sumed to arise from a nonzero mean in the efficient shock series. It follows that the drift…
We adress the maximization problem of expected utility from terminal wealth. The special feature of this paper is that we consider a financial market where the price process of risky assets can have a default time. Using dynamic…
We apply a utility-based method to obtain the value of a finite-time investment opportunity when the underlying real asset is not perfectly correlated to a traded financial asset. Using a discrete-time algorithm to calculate the…
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…
We study a regulation problem for stochastic systems subject to both continuous fluctuations and rare but significant shocks, modeled as a jump-diffusion with uncertainty in both the drift and the jump intensity. Such settings arise in…
We study the dynamic indifference pricing with ambiguity preferences. For this, we introduce the dynamic expected utility with ambiguity via the nonlinear expectation--G-expectation, introduced by Peng (2007). We also study the risk…
We consider the problem of utility maximization for investors with power utility functions. Building on the earlier work Larsen et al. (2016), we prove that the value of the problem is a Frechet-differentiable function of the drift of the…
We propose a method for extending a given asset pricing formula to account for two additional sources of risk: the risk associated with future changes in market--calibrated parameters and the remaining risk associated with idiosyncratic…
To any utility maximization problem under transaction costs one can assign a frictionless model with a price process $S^*$, lying in the bid/ask price interval $[\underline S, \bar{S}]$. Such process $S^*$ is called a \emph{shadow price} if…
We develop a robust framework for pricing and hedging of derivative securities in discrete-time financial markets. We consider markets with both dynamically and statically traded assets and make minimal measurability assumptions. We obtain…
We discuss a concept of path-dependent SDE with distributional drift with possible jumps. We interpret it via a suitable martingale problem, for which we provide existence and uniqueness. The corresponding solutions are expected to be…
We present a detailed analysis and implementation of a splitting strategy to identify simultaneously the local-volatility surface and the jump-size distribution from quoted European prices. The underlying model consists of a jump-diffusion…
If a financial asset's price movement impacts a firm's product demand, the firm can respond to the impact by adjusting its operational decisions. For example, in the automotive industry, car makers decrease the selling prices of…
In this paper we consider an ergodic diffusion process with jumps whose drift coefficient depends on $\mu$ and volatility coefficient depends on $\sigma$, two unknown parameters. We suppose that the process is discretely observed at the…
This paper proposes to model asset price dynamics with a mixture of diffusion processes where the instantaneous volatility of the underlying diffusion process contains a random vector. The marginal probability distributions of the proposed…
This paper focuses on specific investments under negotiated transfer pricing. Reasons for transfer pricing studies are primarily to find conditions that maximize the firm's overall profit, especially in cases with bilateral trading problems…
We present a machine learning approach for finding minimal equivalent martingale measures for markets simulators of tradable instruments, e.g. for a spot price and options written on the same underlying. We extend our results to markets…