Related papers: Option Pricing and Hedging with Small Transaction …
Proportional transaction costs present difficult theoretical problems in trading algorithm design, on account of their lack of analytical tractability. The author derives a solution of DT-NT-DT form for an arbitrary model in which the the…
We present an algorithm producing a dynamic non-self-financing hedging strategy in an incomplete market corresponding to investor-relevant risk criterion. The optimization is a two stage process that first determines admissible model…
We consider the economic problem of optimal consumption and investment with power utility. We study the optimal strategy as the relative risk aversion tends to infinity or to one. The convergence of the optimal consumption is obtained for…
We prove the existence of an equilibrium in a model with transaction costs and price impact where two agents are incentivized to trade towards a target. The two types of frictions -- price impact and transaction costs -- lead the agents to…
This paper studies a finite-horizon portfolio selection problem with non-concave terminal utility and proportional transaction costs, in which the commonly used concavification principle for terminal value is no longer applicable. We…
We consider the multi-period portfolio optimization problem with a single asset that can be held long or short. Due to the presence of transaction costs, maximizing the immediate reward at each period may prove detrimental, as frequent…
Dynamic hedging of an European option under a general local volatility model with small linear transaction costs is studied. A continuous control version of Leland's strategy that asymptotically replicates the payoff is constructed. An…
We apply the concepts of utility based pricing and hedging of derivatives in stochastic volatility markets and introduce a new class of "reciprocal affine" models for which the indifference price and optimal hedge portfolio for pure…
We consider the problem of hedging a European contingent claim in a Bachelier model with transient price impact as proposed by Almgren and Chriss. Following the approach of Rogers and Singh and Naujokat and Westray, the hedging problem can…
This work addresses the problem of optimal pricing and hedging of a European option on an illiquid asset Z using two proxies: a liquid asset S and a liquid European option on another liquid asset Y. We assume that the S-hedge is dynamic…
We consider an arbitrage-free, discrete time and frictionless market. We prove that an investor maximising the expected utility of her terminal wealth can always find an optimal investment strategy provided that her dissatisfaction of…
Value adjustment of uncollateralized trades is determined within a risk-neutral pricing framework. When hedging such trades, investors cannot freely trade protection on their own name, thus facing an incomplete market. This fact is…
In the seminal paper on optimal execution of portfolio transactions, Almgren and Chriss (2001) define the optimal trading strategy to liquidate a fixed volume of a single security under price uncertainty. Yet there exist situations, such as…
We study partial hedging for game options in markets with transaction costs bounded from below. More precisely, we assume that the investor's transaction costs for each trade are the maximum between proportional transaction costs and a…
We consider portfolio selection under nonparametric $\alpha$-maxmin ambiguity in the neighbourhood of a reference distribution. We show strict concavity of the portfolio problem under ambiguity aversion. Implied demand functions are…
We study the range of prices at which a rational agent should contemplate transacting a financial contract outside a given securities market. Trading is subject to nonproportional transaction costs and portfolio constraints and full…
We study utility indifference prices and optimal purchasing quantities for a contingent claim, in an incomplete semi-martingale market, in the presence of vanishing hedging errors and/or risk aversion. Assuming that the average indifference…
In a model with no given probability measure, we consider asset pricing in the presence of frictions and other imperfections and characterize the property of coherent pricing, a notion related to (but much weaker than) the no arbitrage…
We propose a versatile Monte-Carlo method for pricing and hedging options when the market is incomplete, for an arbitrary risk criterion (chosen here to be the expected shortfall), for a large class of stochastic processes, and in the…
We consider trading against a hedge fund or large trader that must liquidate a large position in a risky asset if the market price of the asset crosses a certain threshold. Liquidation occurs in a disorderly manner and negatively impacts…