Related papers: Hedging Conditional Value at Risk with Options
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 present an algorithm producing a dynamic non-self-financing hedging strategy in an incomplete market corresponding to investor-relevant risk criterion. The optimization is a two stage process that first determines admissible model…
We propose a discrete time algorithm for the valuation of employee stock options based on exponential indifference prices and taking into account both the possibility of partial exercise of a fraction of the options and the use of a…
In this paper we study the pricing of exchange options when underlying assets have stochastic volatility and stochastic correlation. An approximation using a closed-form approximation based on a Taylor expansion of the conditional price is…
In this paper, we employ the Heston stochastic volatility model to describe the stock's volatility and apply the model to derive and analyze the optimal trading strategies for dealers in a security market. We also extend our study to option…
In this paper, we present a method of estimating the volatility of a signal that displays stochastic noise (such as a risky asset traded on an open market) utilizing Linear Predictive Coding. The main purpose is to associate volatility with…
We study the Option pricing with linear investment strategy based on discrete time trading of the underlying security, which unlike the existing continuous trading models provides a feasible real market implementation. Closed form formulas…
This paper is devoted to study the effects arising from imposing a value-at-risk (VaR) constraint in mean-variance portfolio selection problem for an investor who receives a stochastic cash flow which he/she must then invest in a…
In the paper we consider the problem of valuation and hedging of American options written on dividend-paying assets whose price dynamics follow the multidimensional diffusion model. We derive a stochastic balance equation for the American…
We describe the pricing and hedging of financial options without the use of probability using rough paths. By encoding the volatility of assets in an enhancement of the price trajectory, we give a pathwise presentation of the replication of…
The aim of this paper is to provide a mathematical contribution on the semi-static hedge of timing risk associated to positions in American-style options under a multi-dimensional market model. Barrier options are considered in the paper…
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…
We present a new approach for studying the problem of optimal hedging of a European option in a finite and complete discrete-time market model. We consider partial hedging strategies that maximize the success probability or minimize the…
An investor with constant absolute risk aversion trades a risky asset with general It\^o-dynamics, in the presence of small proportional transaction costs. In this setting, we formally derive a leading-order optimal trading policy and the…
Employing probabilistic techniques we compute best possible upper and lower bounds on the price of an option on one or two assets with continuous piecewise linear payoff function based on prices of simple call options of possibly distinct…
We introduce and study the problem of calibrating conditional risk, which involves estimating the expected loss of a prediction model conditional on input features. We analyze this problem in both classification and regression settings and…
In this paper, we consider the problem of equal risk pricing and hedging in which the fair price of an option is the price that exposes both sides of the contract to the same level of risk. Focusing for the first time on the context where…
In this paper we solve the discrete time mean-variance hedging problem when asset returns follow a multivariate autoregressive hidden Markov model. Time dependent volatility and serial dependence are well established properties of financial…
We introduce a simple stochastic volatility model, whose novelty consists in taking into account hitting times of the asset price, and study the optimal stopping problem corresponding to a put option whose time horizon (after the asset…
The collateral choice option allows a collateral-posting party the opportunity to change the type of security in which the collateral is deposited. Due to non-zero collateral basis spreads, this optionality significantly impacts asset…