Related papers: Regulatory-Optimal Funding
This paper studies Merton's problem in an extended formulation by incorporating the benchmark tracking on the wealth process. We consider a tracking formulation where the fund manager aims to maximize the trade-off between the expected…
We consider learning a trading agent acting on behalf of the treasury of a firm earning revenue in a foreign currency (FC) and incurring expenses in the home currency (HC). The goal of the agent is to maximize the expected HC at the end of…
Banks must optimize risky investments, dividend payouts, and capital structure under tight Basel III solvency and liquidity constraints, while costly equity issuance serves as a distress-recovery tool. We formulate this as a stochastic…
Portfolio optimisation typically aims to provide an optimal allocation that minimises risk, at a given return target, by diversifying over different investments. However, the potential scope of such risk diversification can be limited if…
It is well known that highly volatile control laws, while theoretically optimal for certain systems, are undesirable from an engineering perspective, being generally deleterious to the controlled system. In this article we are concerned…
I study the limit of a large random economy, where a set of consumers invests in financial instruments engineered by banks, in order to optimize their future consumption. This exercise shows that, even in the ideal case of perfect…
Reinforcement learning (RL) based investment strategies have been widely adopted in portfolio management (PM) in recent years. Nevertheless, most RL-based approaches may often emphasize on pursuing returns while ignoring the risks of the…
This article considers the pricing and hedging of a call option when liquidity matters, that is, either for a large nominal or for an illiquid underlying asset. In practice, as opposed to the classical assumptions of a price-taking agent in…
The objective of this study is to examine empirically the impact of good corporate governance on financial performance of United Kingdom non-financial listed firms. Agency theory and stewardship theory serve as the bases of a conceptual…
This paper studies the problem of optimal investment in incomplete markets, robust with respect to stopping times. We work on a Brownian motion framework and the stopping times are adapted to the Brownian filtration. Robustness can only be…
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…
This paper studies the robust optimal gain selection problem for financial trading systems, formulated within a \emph{double linear policy} framework, which allocates capital across long and short positions. The key objective is to…
We consider the problem of optimal hedging in an incomplete market with an established pricing kernel. In such a market, prices are uniquely determined, but perfect hedges are usually not available. We work in the rather general setting of…
We investigate the portfolio execution problem under a framework in which volatility and liquidity are both uncertain. In our model, we assume that a multidimensional Markovian stochastic factor drives both of them. Moreover, we model…
We consider a government that aims at reducing the debt-to-gross domestic product (GDP) ratio of a country. The government observes the level of the debt-to-GDP ratio and an indicator of the state of the economy, but does not directly…
We develop a dynamic trading strategy in the Linear Quadratic Regulator (LQR) framework. By including a price mean-reversion signal into the optimization program, in a trading environment where market impact is linear and stage costs are…
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 analyze an optimal trade execution problem in a financial market with stochastic liquidity. To this end we set up a limit order book model in which both order book depth and resilience evolve randomly in time. Trading is allowed in both…
The optimization criterion for dividends from a risky business is most often formalized in terms of the expected present value of future dividends. That criterion disregards a potential, explicit demand for stability of dividends. In…
We study the regulation of a monopolistic firm using a robust-design approach. We solve for the policy that minimizes the regulator's worst-case regret, where the regret is the difference between his complete-information payoff minus his…