Related papers: Pricing and Valuation under the Real-World Measure
In this paper I empirically investigate prediction markets for binary options. Advocates of prediction markets have suggested that asset prices are consistent estimators of the "true" probability of a state of the world being realized. I…
Volatility is the canonical measure of financial risk, a role largely inherited from Modern Portfolio Theory. Yet, its universality rests on restrictive efficiency assumptions that render volatility, at best, an incomplete proxy for true…
We suggest an original physical approach to describe the mechanism of market pricing. The core of our approach is to consider pricing at different time scales separately, using independent equations of motion. Such an approach leads to a…
We develop a method using parameterized linear equations to define trading mechanisms in market design models. Our method adeptly addresses challenges arising from factors such as complex endowments or coarse priorities, while offering…
The valuation process that economic agents undergo for investments with uncertain payoff typically depends on their statistical views on possible future outcomes, their attitudes toward risk, and, of course, the payoff structure itself.…
Data are invaluable. How can we assess the value of data objectively, systematically and quantitatively? Pricing data, or information goods in general, has been studied and practiced in dispersed areas and principles, such as economics,…
To assign a value to a portfolio, it is common to use Mark-to-Market prices. However, how should one proceed when the securities are illiquid? When transaction prices are scarce, how can one use all the available real-time information? In…
We study the following fundamental data-driven pricing problem. How can/should a decision-maker price its product based on data at a single historical price? How valuable is such data? We consider a decision-maker who optimizes over…
A concept of martingale-fair index of return, consistent with Arbitrage Free Pricing Theory, is introduced. An explicit formula for the average rate of return of a group of investment/pension funds in a discrete time stochastic model is…
Perpetual American options are financial instruments that can be readily exercised and do not mature. In this paper we study in detail the problem of pricing this kind of derivatives, for the most popular flavour, within a framework in…
This paper presents an overview of information-based asset pricing. In this approach, an asset is defined by its cash-flow structure. The market is assumed to have access to "partial" information about future cash flows. Each cash flow is…
We revisit the classic problem of fair division from a mechanism design perspective, using {\em Proportional Fairness} as a benchmark. In particular, we aim to allocate a collection of divisible items to a set of agents while incentivizing…
We propose a simple randomized rule for the optimization of prices in revenue management with contextual information. It is known that the certainty equivalent pricing rule, albeit popular, is sub-optimal. We show that, by allowing a small…
We use a continuous version of the standard deviation premium principle for pricing in incomplete equity markets by assuming that the investor issuing an unhedgeable derivative security requires compensation for this risk in the form of a…
In this article we consider an optimization problem of expected utility maximization of continuous-time trading in a financial market. This trading is constrained by a benchmark for a utility-based shortfall risk measure. The market…
We study the most famous example of a large financial market: the Arbitrage Pricing Model, where investors can trade in a one-period setting with countably many assets admitting a factor structure. We consider the problem of maximising…
A representation of economic activity in the form of a law of conservation of value is presented based on the definition of value as potential to act in an environment. This allows the encapsulation of the term as a conserved quantity…
We consider a market model where there are two levels of information. The public information generated by the financial assets, and a larger flow of information that contains additional knowledge about a random time. This random time can…
In this work, we identify the most general measure of arbitrage for any market model governed by It\^o processes. We show that our arbitrage measure is invariant under changes of num\'{e}raire and equivalent probability. Moreover, such…
A financial market comprising of a certain number of distinct companies is considered, and the following statement is proved: either a specific agent will surely beat the whole market unconditionally in the long run, or (and this "or" is…