Related papers: Optimization problem and mean variance hedging on …
We consider hedging of a contingent claim by a 'semi-static' strategy composed of a dynamic position in one asset and static (buy-and-hold) positions in other assets. We give general representations of the optimal strategy and the hedging…
This paper studies the valuation and optimal strategy of convertible bonds as a Dynkin game by using the reflected backward stochastic differential equation method and the variational inequality method. We first reduce such a Dynkin game to…
We consider the problem of ESO valuation in continuous time. In particular, we consider models that assume that an appropriate random time serves as a proxy for anything that causes the ESO's holder to exercise the option early, namely,…
The paper introduces benchmark-neutral pricing and hedging for long-term contingent claims. It employs the growth optimal portfolio of the stocks as numeraire and the new benchmark-neutral pricing measure for pricing. For a realistic…
We investigate the problem of pricing and hedging derivatives of Electricity Futures contract when the underlying asset is not available. We propose to use a cross hedging strategy based on the Futures contract covering the larger delivery…
We develop algorithms for the numerical computation of the quadratic hedging strategy in incomplete markets modeled by pure jump Markov process. Using the Hamilton-Jacobi-Bellman approach, the value function of the quadratic hedging problem…
The usual theory of asset pricing in finance assumes that the financial strategies, i.e. the quantity of risky assets to invest, are real-valued so that they are not integer-valued in general, see the Black and Scholes model for instance.…
In this article, we consider a 2 factors-model for pricing defaultable bond with discrete default intensity and barrier where the 2 factors are stochastic risk free short rate process and firm value process. We assume that the default event…
We study optimal investment in an asset subject to risk of default for investors that rely on different levels of information. The price dynamics can include noises both from a Wiener process and a Poisson random measure with infinite…
This paper studies the risk-averse mean-variance optimization in infinite-horizon discounted Markov decision processes (MDPs). The involved variance metric concerns reward variability during the whole process, and future deviations are…
This article deals with the problem of optimal allocation of capital to corporate bonds in fixed income portfolios when there is the possibility of correlated defaults. Under fairly general assumptions for the distribution of the total net…
Price benchmarks are used to incorporate market price trends into contracts, but their use can create opportunities for manipulation by parties involved in the contract. This paper examines this issue using a realistic and tractable model…
We study the stochastic control problem 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…
In this paper we investigate the hedging problem of a unit-linked life insurance contract via the local risk-minimization approach, when the insurer has a restricted information on the market. In particular, we consider an endowment…
We study a notion of good-deal hedging, that corresponds to good-deal valuation for generalized good-deal constraints. Under model uncertainty about the market prices of risk of hedging assets, a robust approach leads to a reduction or even…
We introduce a general framework for Markov decision problems under model uncertainty in a discrete-time infinite horizon setting. By providing a dynamic programming principle we obtain a local-to-global paradigm, namely solving a local,…
We investigate the adaptive robust control framework for portfolio optimization and loss-based hedging under drift and volatility uncertainty. Adaptive robust problems offer many advantages but require handling a double optimization problem…
We consider the problem of option hedging in a market with proportional transaction costs. Since super-replication is very costly in such markets, we replace perfect hedging with an expected loss constraint. Asymptotic analysis for small…
In this paper we address the problem of optimal liquidation of a large portfolio composed by securities exposed to default risk. The default time is described in terms of a Brownian motion representing the evolution of the value of the…
In this paper we show existence and uniqueness of a solution for a system of m variational partial differential inequalities with inter-connected obstacles. This system is the deterministic version of the Verification Theorem of the…