Related papers: Pricing and Valuation under the Real-World Measure
In this paper we study the problem of allocating a scarce resource among several players (or agents). A central decision maker wants to maximize the total utility of all agents. However, such a solution may be unfair for one or more agents…
We define what "Price Impact" means, and how it is measured and modelled in the recent literature. Although this notion seems to convey the idea of a forceful and intuitive mechanism, we discuss why things might not be that simple.…
We consider a global market constituted by several submarkets, each with its own assets and num\'eraire. We provide theoretical foundations for the existence of equivalent martingale measures and results on superreplication prices which…
We consider the pricing problem facing a seller of a contingent claim. We assume that this seller has some general level of partial information, and that he is not allowed to sell short in certain assets. This pricing problem, which is our…
Financial markets are often modelled as if time were unique and continuous across assets and markets. Financial markets are however asynchronous, order flow is event-driven, and waiting times between events are often random. Many of the…
This paper consists of two parts. In the first part we prove the fundamental theorem of asset pricing under short sales prohibitions in continuous-time financial models where asset prices are driven by nonnegative, locally bounded…
The question of how a pure fiat currency is enforced and comes to have a non-zero value has been much debated (Selgin, 1994). What is less often addressed is the case where the enforcement is taken for granted and we ask what value (in…
In an incomplete market setting, we consider two financial agents, who wish to price and trade a non-replicable contingent claim. Assuming that the agents are utility maximizers, we propose a transaction price which is a result of the…
The problem of allocating scarce items to individuals is an important practical question in market design. An increasingly popular set of mechanisms for this task uses the concept of market equilibrium: individuals report their preferences,…
We present here a regress later based Monte Carlo approach that uses neural networks for pricing high-dimensional contingent claims. The choice of specific architecture of the neural networks used in the proposed algorithm provides for…
Unfair predictions of machine learning (ML) models impede their broad acceptance in real-world settings. Tackling this arduous challenge first necessitates defining what it means for an ML model to be fair. This has been addressed by the ML…
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…
In order to monitor and prevent bias in AI systems we can use a wide range of (statistical) fairness measures. However, it is mathematically impossible to optimize for all of these measures at the same time. In addition, optimizing a…
Model risk measures consequences of choosing a model in a class of possible alternatives. We find analytical and simulated bounds for payoff functions on classes of plausible alternatives of a given discrete model. We measure the impact of…
We study resource allocation in two-sided markets from a fundamental perspective and introduce a general modeling and algorithmic framework to effectively incorporate the complex and multidimensional aspects of fairness. Our main technical…
In the context of fair division, the concept of price of fairness has been introduced to quantify the loss of welfare when we have to satisfy some fairness condition. In other words, it is the price we have to pay to guarantee fairness.…
Measurement professionals cannot come to an agreement on the definition of the term 'item fairness'. In this paper a continuous measure of item unfairness is proposed. The more the unfairness measure deviates from zero, the less fair the…
Matching markets are of particular interest in computer science and economics literature as they are often used to model real-world phenomena where we aim to equitably distribute a limited amount of resources to multiple agents and…
The efficiency of a modern economy depends on what we call the Value-Tracking Hypothesis: that market prices of key assets broadly track some underlying value. This can be expected if a sufficient weight of market participants are…
We derive valuations of a portfolio of financial instruments from a securities lending perspective, under different assumptions, and show a weighting scheme that converges to the true valuation. We illustrate conditions under which our…