Related papers: Pricing for Large Positions in Contingent Claims
In mainstream neoclassical economics, utility maximization is the only engine of individual action, and the other or the social, if it is modeled for decisions deemed fundamental, it is done as a tacit externality parameter affecting an…
Using Trades and Quotes data from the Paris stock market, we show that the random walk nature of traded prices results from a very delicate interplay between two opposite tendencies: long-range correlated market orders that lead to…
In financial markets, the order flow, defined as the process assuming value one for buy market orders and minus one for sell market orders, displays a very slowly decaying autocorrelation function. Since orders impact prices, reconciling…
Fair division has long been an important problem in the economics literature. In this note, we consider the existence of proportionally fair allocations of indivisible goods, i.e., allocations of indivisible goods in which every agent gets…
We present a class of flexible and tractable static factor models for the term structure of joint default probabilities, the factor copula models. These high-dimensional models remain parsimonious with pair-copula constructions, and nest…
We study the behavior of the critical price of an American put option near maturity in the exponential L\'evy model when the underlying stock pays dividends at a continuous rate. In particular, we prove that, in situations where the limit…
Recently, the volatility associated with marginal prices has increased due to large scale integration of renewable generation. Price volatility is undesirable from a consumer perspective. To address this issue, we present a framework for…
Reliability Options are capacity remuneration mechanisms aimed at enhancing security of supply in electricity systems. They can be framed as call options on electricity sold by power producers to System Operators. This paper provides a…
We suggest that the broad distribution of time scales in financial markets could be a crucial ingredient to reproduce realistic price dynamics in stylised Agent-Based Models. We propose a fractional reaction-diffusion model for the dynamics…
In this comment we discuss the problem of reconciling the linear efficiency of price returns with the long-memory of supply and demand. We present new evidence that shows that efficiency is maintained by a liquidity imbalance that co-moves…
An investor with constant relative risk aversion trades a safe and several risky assets with constant investment opportunities. For a small fixed transaction cost, levied on each trade regardless of its size, we explicitly determine the…
In a consideration set model, an individual maximizes utility among the considered alternatives. I relate a consideration set additive random utility model to classic discrete choice and the extended additive random utility model, in which…
We propose a discrete time algorithm for the valuation of employee stock options based on exponential indifference prices and taking into account both the possibility of partial exercise of a fraction of the options and the use of a…
An increase in energy production from renewable energy sources is viewed as a crucial achievement in most industrialized countries. The higher variability of power production via renewables leads to a rise in ancillary service costs over…
Insurance companies often include very long-term guarantees in participating life insurance products, which can turn out to be very valuable. Under a guaranteed annuity options (G.A.O), the insurer guarantees to convert a policyholder's…
Locational Marginal Price (LMP) is a dual variable associated with supply-demand matching and represents the cost of delivering power to a particular location if the load at that location increases. In recent times it become more volatile…
A key issue in the estimation of energy hedges is the hedgers' attitude towards risk which is encapsulated in the form of the hedgers' utility function. However, the literature typically uses only one form of utility function such as the…
The problem of robust utility maximization in an incomplete market with volatility uncertainty is considered, in the sense that the volatility of the market is only assumed to lie between two given bounds. The set of all possible models…
This paper studies nonparametric identification and counterfactual bounds for heterogeneous firms that can be ranked in terms of productivity. Our approach works when quantities and prices are latent, rendering standard approaches…
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,…