Related papers: Robust Hedging with Proportional Transaction Costs
We present a framework for hedging a portfolio of derivatives in the presence of market frictions such as transaction costs, market impact, liquidity constraints or risk limits using modern deep reinforcement machine learning methods. We…
Optimal trading strategies for pairs trading have been studied by models that try to find either optimal shares of stocks by assuming no transaction costs or optimal timing of trading fixed numbers of shares of stocks with transaction…
In this article, we introduce an algorithm called Backward Hedging, designed for hedging European and American options while considering transaction costs. The optimal strategy is determined by minimizing an appropriate loss function, which…
In this paper, we consider the problem of hedging Asian options in financial markets with transaction costs. For this, we use the asymptotic hedging approach. The main task of asymptotic hedging in financial markets with transaction costs…
The aim of this paper is to investigate the impact of rebalancing frequency and transaction costs on the log-optimal portfolio, which is a portfolio that maximizes the expected logarithmic growth rate of an investor's wealth. We prove that…
This paper considers the finite horizon portfolio rebalancing problem in terms of mean-variance optimization, where decisions are made based on current information on asset returns and transaction costs. The study's novelty is that the…
We prove the superhedging duality for a discrete-time financial market with proportional transaction costs under model uncertainty. Frictions are modeled through solvency cones as in the original model of [Kabanov, Y., Hedging and…
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…
Transaction costs appear in financial markets in more than one form. There are several results in the literature on small proportional transaction cost and not that many on fixed transaction cost. In the present work, we heuristically study…
We revisit optimal execution of an active portfolio in the presence of slippage (aka linear, proportional, or absolute-value) costs. Market efficiency implies a close balance between active alphas and trading costs, so even small changes to…
We introduce a fairly general, recombining trinomial tree model in the natural world. Market-completeness is ensured by considering a market consisting of two risky assets, a riskless asset, and a European option. The two risky assets…
The martingale optimal transport aims to optimally transfer a probability measure to another along the class of martingales. This problem is mainly motivated by the robust superhedging of exotic derivatives in financial mathematics, which…
This paper studies the problem of option replication in general stochastic volatility markets with transaction costs, using a new specification for the volatility adjustment in Leland's algorithm \cite{Leland}. We prove several limit…
This paper concerns the numerical solution of a fully nonlinear parabolic double obstacle problem arising from a finite portfolio selection with proportional transaction costs. We consider the optimal allocation of wealth among multiple…
The aim of this short note is to establish a limit theorem for the optimal trading strategies in the setup of the utility maximization problem with proportional transaction costs. This limit theorem resolves the open question from [4]. The…
This paper focuses on martingale optimal transport problems when the martingales are assumed to have bounded quadratic variation. First, we give a result that characterizes the existence of a probability measure satisfying some convex…
This paper analyzes a problem of optimal static hedging using derivatives in incomplete markets. The investor is assumed to have a risk exposure to two underlying assets. The hedging instruments are vanilla options written on a single…
Optimal pricing of European call option is described by linear stochastic differential equation. Trading strategy given by a twin of stochastic variables was integrated w.r.t. Black-Scholes formula to adopt optimal pricing to tarading…
We study the problem of bounding path-dependent expectations (within any finite time horizon $d$) over the class of discrete-time martingales whose marginal distributions lie within a prescribed tolerance of a given collection of benchmark…
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…