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We study superreplication of European contingent claims in discrete time in a large trader model with market indifference prices recently proposed by Bank and Kramkov. We introduce a suitable notion of efficient friction in this framework,…
We study super--replication of European contingent claims in an illiquid market with insider information. Illiquidity is captured by quadratic transaction costs and insider information is modeled by an investor who can peek into the future.…
We consider a class of generalized capital asset pricing models in continuous time with a finite number of agents and tradable securities. The securities may not be sufficient to span all sources of uncertainty. If the agents have…
In this paper incomplete-information models are developed for the pricing of securities in a stochastic interest rate setting. In particular we consider credit-risky assets that may include random recovery upon default. The market…
The utility-based pricing of defaultable bonds in the case of stochastic intensity models of default risk is discussed. The Hamilton-Jacobi- Bellman (HJB) equations for the value functions is derived. A finite difference method is used to…
This article presents a generic model for pricing financial derivatives subject to counterparty credit risk. Both unilateral and bilateral types of credit risks are considered. Our study shows that credit risk should be modeled as American…
We consider option pricing using a discrete-time Markov switching stochastic volatility with co-jump model, which can model volatility clustering and varying mean-reversion speeds of volatility. For pricing European options, we develop a…
We propose a fast and accurate numerical method for pricing European swaptions in multi-factor Gaussian term structure models. Our method can be used to accelerate the calibration of such models to the volatility surface. The pricing of an…
Kramkov and Sirbu (2006, 2007) have shown that first-order approximations of power utility-based prices and hedging strategies can be computed by solving a mean-variance hedging problem under a specific equivalent martingale measure and…
Utility based methods provide a very general theoretically consistent approach to pricing and hedging of securities in incomplete financial markets. Solving problems in the utility based framework typically involves dynamic programming,…
This paper presents a new model for pricing financial derivatives subject to collateralization. It allows for collateral arrangements adhering to bankruptcy laws. As such, the model can back out the market price of a collateralized…
Risk-neutral pricing dictates that the discounted derivative price is a martingale in a measure equivalent to the economic measure. The residual ambiguity for incomplete markets is here resolved by minimising the entropy of the price…
In this work we study the continuous time exponential utility maximization problem in the framework of an investor who is informed about the price changes with a delay. This leads to a non-Markovian stochastic control problem. In the case…
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…
In economics, risk aversion is modeled via a concave Bernoulli utility within the expected-utility paradigm. We propose a simple test of expected utility and concavity. We find little support for either: only 30 percent of the choices are…
We provide a new algorithm for solving Risk Sensitive Partially Observable Markov Decisions Processes, when the risk is modeled by a utility function, and both the state space and the space of observations is finite. This algorithm is based…
This paper discusses a nonlinear integral equation arising from portfolio selection with a class of time-inconsistent preferences. We propose a unified framework requiring minimal assumptions, such as right-continuity of market coefficients…
We consider the pricing of derivatives written on accumulated marks, such as weather derivatives or aggregate loss claims, using a self-exciting marked point process. The jump intensity mean-reverts between events and increases at jump…
This paper presents a discrete--time equity derivatives pricing model with default risk in a no--arbitrage framework. Using the equity--credit reduced form approach where default intensity mainly depends on the firm's equity value, we…
In an observed generalized semi-Markov regime, estimation of transition rate of regime switching leads towards calculation of locally risk minimizing option price. Despite the uniform convergence of estimated step function of transition…