Related papers: Hedging under an expected loss constraint with sma…
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…
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 this paper we study the pricing and hedging of structured products in energy markets, such as swing and virtual gas storage, using the exponential utility indifference pricing approach in a general incomplete multivariate market model…
In this note, we consider a general discrete time financial market with proportional transaction costs as in Kabanov and Stricker (2001), Kabanov et al. (2002), Kabanov et al. (2003) and Schachermayer (2004). We provide a dual formulation…
We study superreplication of European contingent claims in discrete time in a large trader model with market indifference prices recently proposed by Bank and Kramkov. We introduce a suitable notion of efficient friction in this framework,…
An investor with constant relative risk aversion and an infinite planning horizon trades a risky and a safe asset with constant investment opportunities, in the presence of small transaction costs and a binding exogenous portfolio…
American options in a multi-asset market model with proportional transaction costs are studied in the case when the holder of an option is able to exercise it gradually at a so-called mixed (randomised) stopping time. The introduction of…
We present an algorithm producing a dynamic non-self-financing hedging strategy in an incomplete market corresponding to investor-relevant risk criterion. The optimization is a two stage process that first determines admissible model…
We develop a model for indifference pricing in derivatives markets where price quotes have bid-ask spreads and finite quantities. The model quantifies the dependence of the prices and hedging portfolios on an investor's beliefs, risk…
We consider the classical Merton problem of lifetime consumption-portfolio optimization problem with small proportional transaction costs. The first order term in the asymptotic expansion is explicitly calculated through a singular ergodic…
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…
In this paper, asymptotic results in a long-term growth rate portfolio optimization model under both fixed and proportional transaction costs are obtained. More precisely, the convergence of the model when the fixed costs tend to zero is…
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 consider a financial model with permanent price impact. Continuous time trading dynamics are derived as the limit of discrete rebalancing policies. We then study the problem of super-hedging a European option. Our main result is the…
We investigate the problem of pricing and hedging derivatives of Electricity Futures contract when the underlying asset is not available. We propose to use a cross hedging strategy based on the Futures contract covering the larger delivery…
The problem of stock hedging is reconsidered in this paper, where a put option is chosen from a set of available put options to hedge the market risk of a stock. A formula is proposed to determine the probability that the potential loss…
In the frictionless discrete time financial market of Bouchard et al.(2015) we consider a trader who, due to regulatory requirements or internal risk management reasons, is required to hedge a claim $\xi$ in a risk-conservative way relative…
We construct an utility-based dynamic asset pricing model for a limit order market. The price is nonlinear in volume and subject to market impact. We solve an optimal hedging problem under the market impact and derive the dynamics of the…
This paper studies the utility maximization on the terminal wealth with random endowments and proportional transaction costs. To deal with unbounded random payoffs from some illiquid claims, we propose to work with the acceptable portfolios…
In the paper a problem of risk measures on a discrete-time market model with transaction costs is studied. Strategy effectiveness and shortfall risk is introduced. This paper is a generalization of quantile hedging presented in [4].