Related papers: High-frequency market-making with inventory constr…
We consider a manufacturer who manages the end-of-life phase and takes one of the three actions at each period: (1) place an order, (2) use existing inventory, (3) stop holding inventory and use an outside/alternative source. Two examples…
We use a continuous version of the standard deviation premium principle for pricing in incomplete equity markets by assuming that the investor issuing an unhedgeable derivative security requires compensation for this risk in the form of a…
We consider a continuous-time model for inventory management with Markov modulated non-stationary demands. We introduce active learning by assuming that the state of the world is unobserved and must be inferred by the manager. We also…
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…
We consider plain vanilla European options written on an underlying asset that follows a continuous time semi-Markov multiplicative process. We derive a formula and a renewal type equation for the martingale option price. In the case in…
The risk premium is one of main concepts in mathematical finance. It is a measure of the trade-offs investors make between return and risk and is defined by the excess return relative to the risk-free interest rate that is earned from an…
Inflation exhibits state-dependent, skewed, and fat-tailed dynamics that make risk a central concern for monetary policy. Accordingly, inflation risks are distributional and cannot be fully captured by mean-based models. We propose a…
In classical Markov Decision Processes (MDPs), action costs and transition probabilities are assumed to be known, although an accurate estimation of these parameters is often not possible in practice. This study addresses MDPs under cost…
We construct a statistical indicator for the detection of short-term asset price bubbles based on the information content of bid and ask market quotes for plain vanilla put and call options. Our construction makes use of the martingale…
Through the analysis of a dataset of ultra high frequency order book updates, we introduce a model which accommodates the empirical properties of the full order book together with the stylized facts of lower frequency financial data. To do…
In FX cash markets, market makers provide liquidity to clients for a wide variety of currency pairs. Because of flow uncertainty and market volatility, they face inventory risk. To mitigate this risk, they typically skew their prices to…
We exploit cutting-edge deep learning methodologies to explore the predictability of high-frequency Limit Order Book mid-price changes for a heterogeneous set of stocks traded on the NASDAQ exchange. In so doing, we release `LOBFrame', an…
We formulate option market making as a constrained, risk-sensitive control problem that unifies execution, hedging, and arbitrage-free implied-volatility surfaces inside a single learning loop. A fully differentiable eSSVI layer enforces…
Model uncertainty is a type of inevitable financial risk. Mistakes on the choice of pricing model may cause great financial losses. In this paper we investigate financial markets with mean-volatility uncertainty. Models for stock markets…
This study pioneers the application of the market microstructure framework to an informal financial market. By scraping data from websites and social media about the Cuban informal currency market, we model the dynamics of bid/ask…
Using the Donsker-Prokhorov invariance principle we extend the Kim-Stoyanov-Rachev-Fabozzi option pricing model to allow for variably-spaced trading instances, an important consideration for short-sellers of options. Applying the…
Recent empirical studies suggest that the volatility of an underlying price process may have correlations that decay slowly under certain market conditions. In this paper, the volatility is modeled as a stationary process with long-range…
We introduce a new class of automated market maker (AMM), the \emph{partially active automated market maker} (PA-AMM). PA-AMM divides its reserves into two parts, the active and the passive parts, and uses only the active part for trading.…
In this paper, we consider an infinite horizon, continuous-review, stochastic inventory system in which cumulative customers' demand is price-dependent and is modeled as a Brownian motion. Excess demand is backlogged. The revenue is earned…
Risk-averse model predictive control (MPC) offers a control framework that allows one to account for ambiguity in the knowledge of the underlying probability distribution and unifies stochastic and worst-case MPC. In this paper we study…