Related papers: Optimization problem and mean variance hedging on …
We study pricing and hedging under parameter uncertainty for a class of Markov processes which we call generalized affine processes and which includes the Black-Scholes model as well as the constant elasticity of variance (CEV) model as…
In this paper we study the optimal m-states switching problem in finite horizon as well as infinite horizon with risk of default. We allow the switching cost functionals and cost of default to be of polynomial growth and arbitrary. We show…
To construct a no-arbitrage defaultable bond market, we work on the state price density framework. Using the heat kernel approach (HKA for short) with the killing of a Markov process, we construct a single defaultable bond market that…
In this report we derive the strategic (deterministic) allocation to bonds and stocks resulting in the optimal mean-variance trade-off on a given investment horizon. The underlying capital market features a mean-reverting process for equity…
We consider the mean--variance portfolio optimization problem under the game theoretic framework and without risk-free assets. The problem is solved semi-explicitly by applying the extended Hamilton--Jacobi--Bellman equation. Although the…
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 introduce a new model for pricing corporate bonds, which is a modification of the classical model of Merton. In this new model, we drop the liquidity assumption of the firm's asset value process, and assume that there is a liquidly…
We study the complexity of central controller synthesis problems for finite-state Markov decision processes, where the objective is to optimize both the expected mean-payoff performance of the system and its stability. We argue that the…
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…
We study the optimal timing of derivative purchases in incomplete markets. In our model, an investor attempts to maximize the spread between her model price and the offered market price through optimally timing her purchase. Both the…
In Electricity markets, illiquidity, transaction costs and market price characteristics prevent managers to replicate exactly contracts. A residual risk is always present and the hedging strategy depends on a risk criterion chosen. We…
The dynamic hedging theory only makes sense in the setup of one given model, whereas the practice of dynamic hedging is just the opposite, with models fleeing after the data through daily recalibration. This is quite of a quantitative…
We propose a unified framework for equity and credit risk modeling, where the default time is a doubly stochastic random time with intensity driven by an underlying affine factor process. This approach allows for flexible interactions…
The window mean-payoff objective strengthens the classical mean-payoff objective by computing the mean-payoff over a finite window that slides along an infinite path. Two variants have been considered: in one variant, the maximum window…
This paper considers the mean variance portfolio management problem. We examine portfolios which contain both primary and derivative securities. The challenge in this context is due to portfolio's nonlinearities. The delta-gamma…
We investigate the optimal reinsurance problem under the criterion of maximizing the expected utility of terminal wealth when the insurance company has restricted information on the loss process. We propose a risk model with claim arrival…
We find the variance-optimal equivalent martingale measure when multivariate assets are modeled by a regime-switching geometric Brownian motion, and the regimes are represented by a homogeneous continuous time Markov chain. Under this new…
This paper studies a valuation framework for financial contracts subject to reference and counterparty default risks with collateralization requirement. We propose a fixed point approach to analyze the mark-to-market contract value with…
This paper deals with numerical solutions of maximizing expected utility from terminal wealth under a non-bankruptcy constraint. The wealth process is subject to shocks produced by a general marked point process. The problem of the agent is…
We consider the pricing and hedging of exotic options in a model-independent set-up using \emph{shortfall risk and quantiles}. We assume that the marginal distributions at certain times are given. This is tantamount to calibrating the model…