Related papers: Pricing and Valuation under the Real-World Measure
How does one allocate a collection of resources to a set of strategic agents in a fair and efficient manner without using money? For in many scenarios it is not feasible to use money to compensate agents for otherwise unsatisfactory…
This paper studies the topic of cost-efficiency in incomplete markets. A payoff is called cost-efficient if it achieves a given probability distribution at some given investment horizon with a minimum initial budget. Extensive literature…
Classical asset pricing relies on the risk-neutral measure $Q$ for valuation, yet its economic interpretation is typically anchored in a physical measure $P$. This creates an inherent asymmetry: pricing is governed by $Q$, while meaning…
We study the pricing of credit derivatives with asymmetric information. The managers have complete information on the value process of the firm and on the default threshold, while the investors on the market have only partial observations,…
We propose a pseudo-market solution to resource allocation problems subject to constraints. Our treatment of constraints is general: including bihierarchical constraints due to considerations of diversity in school choice, or scheduling in…
This paper aims to provide a practical example on the assessment and propagation of input uncertainty for option pricing when using tree-based methods. Input uncertainty is propagated into output uncertainty, reflecting that option prices…
We propose a probabilistic framework for pricing derivatives, which acknowledges that information and beliefs are subjective. Market prices can be translated into implied probabilities. In particular, futures imply returns for these implied…
The state of economic theory and accumulated facts from the different branches of the economic science require to analyze the concept of the description of economy systems. The economic reality generates the problems the solution of that is…
Pricing advanced data products - particularly in complex fields such as semiconductor manufacturing - is a fundamentally challenging task due to the sparsity of publicly available transaction data, and its frequent heterogeneity and…
Most of parameters used to describe states and dynamics of financial market depend on proportions of the appropriate variables rather than on their actual values. Therefore, projective geometry seems to be the correct language to describe…
We will compare three types of prices, namely, rational (hedging) prices, geometric (growth rate) prices, and martingale (measure) prices. We will show that rational prices in the complete market theory are sometimes contrary to common…
Auction is applied for trade with various mechanisms. A simple but practical question is which mechanism, typically first-price or second-price auctions, is preferred from the perspective of bidders or sellers. A celebrated answer is…
In this paper we state the fundamental principles of the gauge approach to financial economics and demonstrate the ways of its application. In particular, modelling of realistic price processes is considered for an example of S&P500 market…
Information in the form of data, which can be stored and transferred between users, can be viewed as an intangible commodity, which can be traded in exchange for money. Determining the fair price at which a string of data should be traded…
We consider a general local-stochastic volatility model and an investor with exponential utility. For a European-style contingent claim, whose payoff may depend on either a traded or non-traded asset, we derive an explicit approximation for…
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.…
A financial market is a system resulting from the complex interaction between participants in a closed economy. We propose a minimal microscopic model of the financial market economy based on the real economy's symmetry constraint and…
For a given level of accuracy in option prices, the paper considers the problem of deciding when exactly, as one or more of the pricing parameters change, a barrier option degenerates into a simpler type of option. This problem is…
Many real-world classification problems are significantly class-imbalanced to detriment of the class of interest. The standard set of proper evaluation metrics is well-known but the usual assumption is that the test dataset imbalance equals…
We consider the pricing problem of a seller with delayed price information. By using Lagrange duality, a dual problem is derived, and it is proved that there is no duality gap. This gives a characterization of the seller's price of a…