Related papers: A proposal for impact-adjusted valuation: Critical…
Changes in collateralization have been implicated in significant default (or near-default) events during the financial crisis, most notably with AIG. We have developed a framework for quantifying this effect based on moving between…
This paper provides a framework for modeling the financial system with multiple illiquid assets during a crisis. This work generalizes the paper by Amini, Filipovic and Minca (2016) by allowing for differing liquidation strategies. The main…
This paper uses the development of multi-agent market models to present a unified approach to the joint questions of how financial market movements may be simulated, predicted, and hedged against. We examine the effect of different market…
This article introduces a new mathematical concept of illiquidity that goes hand in hand with credit risk. The concept is not volume- but constraint-based, i.e., certain assets cannot be shorted and are ineligible as num\'eraire. If those…
Recurring international financial crises have adverse socioeconomic effects and demand novel regulatory instruments or strategies for risk management and market stabilization. However, the complex web of market interactions often impedes…
We present an extended version of the recently proposed "LLOB" model for the dynamics of latent liquidity in financial markets. By allowing for finite cancellation and deposition rates within a continuous reaction-diffusion setup, we…
To assign a value to a portfolio, it is common to use Mark-to-Market prices. However, how should one proceed when the securities are illiquid? When transaction prices are scarce, how can one use all the available real-time information? In…
Dealers in foreign exchange markets provide bid and ask prices to their clients at which they are happy to buy and sell, respectively. To manage risk, dealers can skew their quotes and hedge in the interbank market. Hedging offers certainty…
We study an optimal liquidation problem under the ambiguity with respect to price impact parameters. Our main results show that the value function and the optimal trading strategy can be characterized by the solution to a semi-linear PDE…
We study a problem of optimal investment/consumption over an infinite horizon in a market consisting of two possibly correlated assets: one liquid and one illiquid. The liquid asset is observed and can be traded continuously, while the…
Management of the portfolios containing low liquidity assets is a tedious problem. The buyer proposes the price that can differ greatly from the paper value estimated by the seller, the seller, on the other hand, can not liquidate his…
Prediction markets are long known for prediction accuracy. This study systematically explores the fundamental properties of prediction markets, addressing questions about their information aggregation process and the factors contributing to…
In the aftermath of the 2007 global financial crisis, banks started reflecting into derivative pricing the cost of capital and collateral funding through XVA metrics. Here XVA is a catch-all acronym whereby X is replaced by a letter such as…
Risk measures for multivariate financial positions are studied in a utility-based framework. Under a certain incomplete preference relation, shortfall and divergence risk measures are defined as the optimal values of specific set…
I develop a tractable adverse-selection model comparing secured bank loans and bonds when both pledge collateral but differ in effective liquidation efficiency. A small wedge in recovery rates generates coexistence, a sharp bank-bond…
In this paper, we consider the problem of equal risk pricing and hedging in which the fair price of an option is the price that exposes both sides of the contract to the same level of risk. Focusing for the first time on the context where…
I study the limit of a large random economy, where a set of consumers invests in financial instruments engineered by banks, in order to optimize their future consumption. This exercise shows that, even in the ideal case of perfect…
In this paper we discuss the optimal liquidation over a finite time horizon until the exit time. The drift and diffusion terms of the asset price are general functions depending on all variables including control and market regime. There is…
Effective risk control must make a tradeoff between the microprudential risk of exogenous shocks to individual institutions and the macroprudential risks caused by their systemic interactions. We investigate a simple dynamical model for…
We study a portfolio selection problem in a continuous-time It\^o-Markov additive market with prices of financial assets described by Markov additive processes which combine L\'evy processes and regime switching models. Thus the model takes…