Related papers: Duality Theory for Portfolio Optimisation under Tr…
We theoretically and empirically study portfolio optimization under transaction costs and establish a link between turnover penalization and covariance shrinkage with the penalization governed by transaction costs. We show how the ex ante…
We propose a general approximation method for determining optimal trading strategies in markets with proportional transaction costs, with a polynomial approximation of the residual value function. The method is exemplified by several…
We consider the problem of option hedging in a market with proportional transaction costs. Since super-replication is very costly in such markets, we replace perfect hedging with an expected loss constraint. Asymptotic analysis for small…
The important application of semi-static hedging in financial markets naturally leads to the notion of quasi self-dual processes which is, for continuous semimartingales, related to symmetry properties of both their ordinary as well as…
Explicit robust hedging strategies for convex or concave payoffs under a continuous semimartingale model with uncertainty and small transaction costs are constructed. In an asymptotic sense, the upper and lower bounds of the cumulative…
Recent empirical studies suggest that the volatility of an underlying price process may have correlations that decay slowly under certain market conditions. In this paper, the volatility is modeled as a stationary process with long-range…
American options are studied in a general discrete market in the presence of proportional transaction costs, modelled as bid-ask spreads. Pricing algorithms and constructions of hedging strategies, stopping times and martingale…
We study partial hedging for game options in markets with transaction costs bounded from below. More precisely, we assume that the investor's transaction costs for each trade are the maximum between proportional transaction costs and a…
This article studies convex duality in stochastic optimization over finite discrete-time. The first part of the paper gives general conditions that yield explicit expressions for the dual objective in many applications in operations…
The aim of this article is to propose a core game theory model of transaction costs wherein it is indicated how direct costs determine the probability of loss and subsequent transaction costs. The existence of optimum is proven, and the way…
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].
Using duality theory techniques we derive simple, closed-form formulas for bounding the optimal revenue of a monopolist selling many heterogeneous goods, in the case where the buyer's valuations for the items come i.i.d. from a uniform…
In this work, we study a dynamic portfolio optimization problem related to pairs trading, which is an investment strategy that matches a long position in one security with a short position in another security with similar characteristics.…
We develop a general duality-theory framework for revenue maximization in additive Bayesian auctions. The framework extends linear programming duality and complementarity to constraints with partial derivatives. The dual system reveals the…
We consider conditional-mean hedging in a fractional Black-Scholes pricing model in the presence of proportional transaction costs. We develop an explicit formula for the conditional-mean hedging portfolio in terms of the recently…
We consider the terminal wealth utility maximization problem from the point of view of a portfolio manager who is paid by an incentive scheme, which is given as a convex function $g$ of the terminal wealth. The manager's own utility…
We propose a constructive framework for the super-hedging problem of a European contingent claim under proportional transaction costs in discrete time. Our main contribution is an explicit recursive scheme that computes both the…
We investigate pricing-hedging duality for American options in discrete time financial models where some assets are traded dynamically and others, e.g. a family of European options, only statically. In the first part of the paper we…
We establish dual attainment for the multimarginal, multi-asset martingale optimal transport (MOT) problem, a fundamental question in the mathematical theory of model-independent pricing and hedging in quantitative finance. Our main result…
We investigate online pricing in two-sided markets where a platform repeatedly posts prices based on binary accept/reject feedback to maximize gains-from-trade (GFT) or profit. We characterize the regret achievable across three mechanism…