Related papers: Sticky continuous processes have consistent price …

Convex duality for two two different super--replication problems in a continuous time financial market with proportional transaction cost is proved. In this market, static hedging in a finite number of options, in addition to usual dynamic…

We consider the classical mathematical economics problem of {\em Bayesian optimal mechanism design} where a principal aims to optimize expected revenue when allocating resources to self-interested agents with preferences drawn from a known…

This paper considers binomial approximation of continuous time stochastic processes. It is shown that, under some mild integrability conditions, a process can be approximated in mean square sense and in other strong metrics by binomial…

In this paper we investigate a class of swing options with firm constraints in view of the modeling of supply agreements. We show, for a fully general payoff process, that the premium, solution to a stochastic control problem, is concave…

We develop from basic economic principles a continuous-time model for a large investor who trades with a finite number of market makers at their utility indifference prices. In this model, the market makers compete with their quotes for the…

In a model with no given probability measure, we consider asset pricing in the presence of frictions and other imperfections and characterize the property of coherent pricing, a notion related to (but much weaker than) the no arbitrage…

We study contingent claims in a discrete-time market model where trading costs are given by convex functions and portfolios are constrained by convex sets. In addition to classical frictionless markets and markets with transaction costs or…

We provide a Fundamental Theorem of Asset Pricing and a Superhedging Theorem for a model independent discrete time financial market with proportional transaction costs. We consider a probability-free version of the Robust No Arbitrage…

In discrete time markets with proportional transaction costs, Schachermayer (2004) shows that robust no-arbitrage is equivalent to the existence of a strictly consistent price system. In this paper, we introduce the concept of prospective…

For portfolio choice problems with proportional transaction costs, we discuss whether or not there exists a "shadow price", i.e., a least favorable frictionless market extension leading to the same optimal strategy and utility. By means of…

The proposed model modifies option pricing formulas for the basic case of log-normal probability distribution providing correspondence to formulated criteria of efficiency and completeness. The model is self-calibrating by historic…

We obtain an exact necessary and sufficient condition for the existence and uniqueness of equilibrium asset prices in infinite horizon, discrete-time, arbitrage free environments. Through several applications we show how the condition…

This paper presents an axiomatic scheme for interest rate models in discrete time. We take a pricing kernel approach, which builds in the arbitrage-free property and provides a link to equilibrium economics. We require that the pricing…

In the classical model of stock prices which is assumed to be Geometric Brownian motion, the drift and the volatility of the prices are held constant. However, in reality, the volatility does vary. In quantitative finance, the Heston model…

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…

Working in a continuous time setting, we extend to the general case of dynamic risk measures continuous from above the characterization of time consistency in terms of ``cocycle condition'' of the minimal penalty function. We prove also the…

In this study, we investigate asset price bubbles in a discrete-time, discrete-state market under model uncertainty and short sales prohibitions. Building on a new fundamental theorem of asset pricing and a superhedging duality in this…

We introduce a stochastic price model where, together with a random component, a moving average of logarithmic prices contributes to the price formation. Our model is tested against financial datasets, showing an extremely good agreement…

We extend the super-replication theorems of [27] in a dynamic setting, both in the num\'eraire-based as well as in the num\'eraire-free setting. For this purpose, we generalize the notion of admissible strategies. In particular, we obtain a…

We consider an incomplete multi-asset binomial market model. We prove that for a wide class of contingent claims the extremal multi-step martingale measure is a power of the corresponding single-step extremal martingale measure. This allows…