Related papers: Asymptotic replication with modified volatility un…

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 hedging of a contingent claim by a 'semi-static' strategy composed of a dynamic position in one asset and static (buy-and-hold) positions in other assets. We give general representations of the optimal strategy and the hedging…

This paper considers the valuation of a European call option under the Heston stochastic volatility model. We present the asymptotic solution to the option pricing problem in powers of the volatility of variance. Then we introduce the…

We extend a linear version of the liquidity risk model of Cetin et al. (2004) to allow for price impacts. We show that the impact of a market order on prices depends on the size of the transaction and the level of liquidity. We obtain a…

The calibration of a local volatility models to a given set of option prices is a classical problem of mathematical finance. It was considered in multiple papers where various solutions were proposed. In this paper an extension of the…

We study a class of iterated empirical risk minimization (ERM) procedures in which two successive ERMs are performed on the same dataset, and the predictions of the first estimator enter as an argument in the loss function of the second.…

We derive asymptotic expansions for the prices of a variety of European and barrier-style claims in a general local-stochastic volatility setting. Our method combines Taylor series expansions of the diffusion coefficients with an expansion…

We determine the variance-optimal hedge when the logarithm of the underlying price follows a process with stationary independent increments in discrete or continuous time. Although the general solution to this problem is known as backward…

In the theory of riskfree hedges in continuous time finance, one can start with the delta-hedge and derive the option pricing equation, or one can start with the replicating, self-financing hedging strategy and derive both the delta-hedge…

The purpose of this work is to explore the role that arbitrage opportunities play in pricing financial derivatives. We use a non-equilibrium model to set up a stochastic portfolio, and for the random arbitrage return, we choose a stationary…

This study investigates the dynamics of alternating minimization applied to a bilinear regression task with normally distributed covariates, under the asymptotic system size limit where the number of parameters and observations diverge at…

We consider as given a discrete time financial market with a risky asset and options written on that asset and determine both the sub- and super-hedging prices of an American option in the model independent framework of ArXiv:1305.6008. We…

In this paper, we study stochastic volatility models in regimes where the maturity is small, but large compared to the mean-reversion time of the stochastic volatility factor. The problem falls in the class of averaging/homogenization…

A leveraged exchange traded fund (LETF) is an exchange traded fund that uses financial derivatives to amplify the price changes of a basket of goods. In this paper, we consider the robust hedging of European options on a LETF, finding…

A variance swap is a derivative with a path-dependent payoff which allows investors to take positions on the future variability of an asset. In the idealised setting of a continuously monitored variance swap written on an asset with…

The pricing and hedging of a general class of options (including American, Bermudan and European options) on multiple assets are studied in the context of currency markets where trading is subject to proportional transaction costs, and…

In Electricity markets, illiquidity, transaction costs and market price characteristics prevent managers to replicate exactly contracts. A residual risk is always present and the hedging strategy depends on a risk criterion chosen. We…

We prove limit theorems for the super-replication cost of European options in a Binomial model with friction. The examples covered are markets with proportional transaction costs and the illiquid markets. The dual representation for the…

We study the pricing and hedging of derivative securities with uncertainty about the volatility of the underlying asset. Rather than taking all models from a prespecified class equally seriously, we penalise less plausible ones based on…

We consider the short time behaviour of stochastic systems affected by a stochastic volatility evolving at a faster time scale. We study the asymptotics of a logarithmic functional of the process by methods of the theory of homogenisation…