Related papers: Ambiguous volatility and asset pricing in continuo…
Paper is based on "The cost of illiquidity and its effects on hedging", L. C. G. Rogers and Surbjeet Singh, 2010. We generalize its thesis to constant elasticity model, which own previously used Black-Schoels model as a special case. The…
A minimal model of a market of myopic non-cooperative agents who trade bilaterally with random bids reproduces qualitative features of short-term electric power markets, such as those in California and New England. Each agent knows its own…
It is shown that absence of arbitrage opportunity in financial markets is a particular case of existence of uncertainty in decision system. Absence of arbitrage opportunity is considered in the sense of the Arrow-Debreu model of financial…
We provide a Fundamental Theorem of Asset Pricing and a Superhedging Theorem for a model independent discrete time financial market with proportional transaction costs. We consider a probability-free version of the Robust No Arbitrage…
Although the CML (Capital Market Line), the Intertemporal-CAPM, the CAPM/SML (Security Market Line) and the Intertemporal Arbitrage Pricing Theory (IAPT) are widely used in portfolio management, valuation and capital markets financing;…
We investigate financial markets under model risk caused by uncertain volatilities. For this purpose we consider a financial market that features volatility uncertainty. To have a mathematical consistent framework we use the notion of…
We study a continuous-time expected utility maximization problem in which the investor at maturity receives the value of a contingent claim in addition to the investment payoff from the financial market. The investor knows nothing about the…
In an electric power system, demand fluctuations may result in significant ancillary cost to suppliers. Furthermore, in the near future, deep penetration of volatile renewable electricity generation is expected to exacerbate the variability…
We explore the deliberate infusion of ambiguity into the design of contracts. We show that when the agent is ambiguity-averse and hence chooses an action that maximizes their minimum utility, the principal can strictly gain from using an…
We consider a discrete-time incomplete multi-asset market model with continuous price jumps. For a wide class of contingent claims, including European basket call options, we compute the bounds of the interval containing the no-arbitrage…
In the presence of ambiguity on the driving force of market randomness, we consider the dynamic portfolio choice without any predetermined investment horizon. The investment criteria is formulated as a robust forward performance process,…
We derive formulas for the performance of capital assets in continuous time from an efficient market hypothesis, with no stochastic assumptions and no assumptions about the beliefs or preferences of investors. Our efficient market…
The usage of a spot volatility estimate based on a volatility decomposition in a time-changed price-model according to the trading times is investigated. In this model clock-time volatility splits up into the product of tick-time volatility…
We propose a heterogeneous agent market model (HAM) in continuous time. The market is populated by fundamental traders and chartists, who both use simple linear trading rules. Most of the related literature explores stability, price…
We consider a popular model of microeconomics with countably many assets: the Arbitrage Pricing Model. We study the problem of optimal investment under an expected utility criterion and look for conditions ensuring the existence of optimal…
We consider the fundamental theorem of asset pricing (FTAP) and hedging prices of options under non-dominated model uncertainty and portfolio constrains in discrete time. We first show that no arbitrage holds if and only if there exists…
In this paper, we consider the discrete-time setting, and the market model described by (S,F,T)$. Herein F is the ``public" flow of information which is available to all agents overtime, S is the discounted price process of d-tradable…
Providing a measure of market risk is an important issue for investors and financial institutions. However, the existing models for this purpose are per definition symmetric. The current paper introduces an asymmetric capital asset pricing…
As operators acting on the undetermined final settlement of a derivative security, expectation is linear but price is non-linear. When the market of underlying securities is incomplete, non-linearity emerges from the bid-offer around the…
In a stochastic volatility framework, we find a general pricing equation for the class of payoffs depending on the terminal value of a market asset and its final quadratic variation. This allows a pricing tool for European-style claims…