Related papers: Binary markets under transaction costs
Algorithmic Mechanism Design attempts to marry computation and incentives, mainly by leveraging monetary transfers between designer and selfish agents involved. This is principally because in absence of money, very little can be done to…
In this paper we introduce a new approach to model-free path-dependent option pricing. We first introduce a general duality result for linear optimisation problems over signed measures introduced in [3] and show how the the problem of…
An investor with constant relative risk aversion and an infinite planning horizon trades a risky and a safe asset with constant investment opportunities, in the presence of small transaction costs and a binding exogenous portfolio…
We present a methodology for representing probabilistic relationships in a general-equilibrium economic model. Specifically, we define a precise mapping from a Bayesian network with binary nodes to a market price system where consumers and…
We study an American option pricing problem with liquidity risks and transaction fees. As endogenous transaction costs, liquidity risks of the underlying asset are modeled by a mean-reverting process. Transaction fees are exogenous…
This paper studies the equilibrium price of an asset that is traded in continuous time between N agents who have heterogeneous beliefs about the state process underlying the asset's payoff. We propose a tractable model where agents maximize…
Decentralized exchanges using automated market makers create arbitrage opportunities with centralized exchanges, where gas fees and transaction ordering are critical. Existing models largely overlook competition among arbitrageurs, despite…
We study superhedging of contingent claims with physical delivery in a discrete-time market model with convex transaction costs. Our model extends Kabanov's currency market model by allowing for nonlinear illiquidity effects. We show that…
We consider a generic market model with a single stock and with random volatility. We assume that there is a number of tradable options for that stock with different strike prices. The paper states the problem of finding a pricing rule that…
We study the most famous example of a large financial market: the Arbitrage Pricing Model, where investors can trade in a one-period setting with countably many assets admitting a factor structure. We consider the problem of maximising…
It is known from previous work of the authors that non-negative arbitrage free price processes in finance can be described in terms of filtered likelihood processes of statistical experiments and vice versa. The present paper summarizes and…
I construct a novel random double auction as a robust bilateral trading mechanism for a profit-maximizing intermediary who facilitates trade between a buyer and a seller. It works as follows. The intermediary publicly commits to charging a…
We consider arbitrage free valuation of European options in Black-Scholes and Merton markets, where the general structure of the market is known, however the specific parameters are not known. In order to reflect this subjective uncertainty…
Recently, incomplete-market techniques have been used to develop a model applicable to credit default swaps (CDSs) with results obtained that are quite different from those obtained using the market-standard model. This article makes use of…
Motivated by the practical challenge in monitoring the performance of a large number of algorithmic trading orders, this paper provides a methodology that leads to automatic discovery of the causes that lie behind a poor trading…
The objective of this paper is to provide a comprehensive study no-arbitrage pricing of financial derivatives in the presence of funding costs, the counterparty credit risk and market frictions affecting the trading mechanism, such as…
For utility maximization problems under proportional transaction costs, it has been observed that the original market with transaction costs can sometimes be replaced by a frictionless "shadow market" that yields the same optimal strategy…
In this study, we consider the asset pricing under model uncertainty with discrete time and states structure. For the single-period securities model, we give a novel definition of arbitrage under a family of probability, and explore of its…
We reconsider the microeconomic foundations of financial economics. Motivated by the importance of Knightian Uncertainty in markets, we present a model that does not carry any probabilistic structure ex ante, yet is based on a common order.…
Randomized higher-order computation can be seen as being captured by a lambda calculus endowed with a single algebraic operation, namely a construct for binary probabilistic choice. What matters about such computations is the probability of…