Related papers: Hedging under an expected loss constraint with sma…
Motivated by the asset-liability management of a nuclear power plant operator, we consider the problem of finding the least expensive portfolio, which outperforms a given set of stochastic benchmarks. For a specified loss function, the…
We study how trading costs are reflected in equilibrium returns. To this end, we develop a tractable continuous-time risk-sharing model, where heterogeneous mean-variance investors trade subject to a quadratic transaction cost. The…
Value adjustment of uncollateralized trades is determined within a risk-neutral pricing framework. When hedging such trades, investors cannot freely trade protection on their own name, thus facing an incomplete market. This fact is…
We construct algorithms for computation of prices and superhedging strategies for game options in general discrete markets both from the seller and the buyer points of view.
As soon as one accepts to abandon the zero-risk paradigm of Black-Scholes, very interesting issues concerning risk control arise because different definitions of the risk become unequivalent. Optimal hedges then depend on the quantity one…
Hedging in the presence of transaction costs leads to complex optimization problems. These problems typically lack closed-form solutions, and their implementation relies on numerical methods that provide hedging strategies for specific…
We consider the economic problem of optimal consumption and investment with power utility. We study the optimal strategy as the relative risk aversion tends to infinity or to one. The convergence of the optimal consumption is obtained for…
We consider infinite dimensional optimization problems motivated by the financial model called Arbitrage Pricing Theory. Using probabilistic and functional analytic tools, we provide a dual characterization of the super-replication cost.…
This paper demonstrates a practical method for computing the solution of an expectation-constrained robust maximization problem with immediate applications to model-free no-arbitrage bounds and super-replication values for many financial…
In a market with a rough or Markovian mean-reverting stochastic volatility there is no perfect hedge. Here it is shown how various delta-type hedging strategies perform and can be evaluated in such markets in the case of European options. A…
Kusuoka [ Limit Theorem on Option Replication Cost with Transaction Costs, Ann. Appl. Probab. 5, 198--221, (1995).] showed how to obtain non-trivial scaling limits of superreplication prices in discrete-time models of a single risky asset…
Approximations to utility indifference prices are provided for a contingent claim in the large position size limit. Results are valid for general utility functions on the real line and semi-martingale models. It is shown that as the…
This paper studies the problem of maximizing the expected utility of terminal wealth for a financial agent with an unbounded random endowment, and with a utility function which supports both positive and negative wealth. We prove the…
How to compute (super) hedging costs in rather general fi- nancial market models with transaction costs in discrete-time ? Despite the huge literature on this topic, most of results are characterizations of the super-hedging prices while it…
The pricing, hedging, optimal exercise and optimal cancellation of game or Israeli options are considered in a multi-currency model with proportional transaction costs. Efficient constructions for optimal hedging, cancellation and exercise…
We study super-replication of contingent claims in an illiquid market with model uncertainty. Illiquidity is captured by nonlinear transaction costs in discrete time and model uncertainty arises as our only assumption on stock price returns…
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…
We present a numerically efficient approach for learning a risk-neutral measure for paths of simulated spot and option prices up to a finite horizon under convex transaction costs and convex trading constraints. This approach can then be…
The paper studies sub and super-replication price bounds for contingent claims defined on general trajectory based market models. No prior probabilistic or topological assumptions are placed on the trajectory space, trading is assumed to…
We study the hedging and valuation of European and American claims on a non-traded asset $Y$, when a traded stock $S$ is available for hedging, with $S$ and $Y$ following correlated geometric Brownian motions. This is an incomplete market,…