Related papers: Hedging Conditional Value at Risk with Options
We explore the role that random arbitrage opportunities play in hedging financial derivatives. We extend the asymptotic pricing theory presented by Fedotov and Panayides [Stochastic arbitrage return and its implication for option pricing,…
In this paper we use a hybrid Monte Carlo-Optimal quantization method to approximate the conditional survival probabilities of a firm, given a structural model for its credit defaul, under partial information. We consider the case when the…
In this paper, we focus on finding the optimal hedging strategy of a credit index option using reinforcement learning. We take a practical approach, where the focus is on realism i.e. discrete time, transaction costs; even testing our…
We present the conditional value-at-risk (CVaR) in the context of Markov chains and Markov decision processes with reachability and mean-payoff objectives. CVaR quantifies risk by means of the expectation of the worst p-quantile. As such it…
We present a framework for hedging a portfolio of derivatives in the presence of market frictions such as transaction costs, market impact, liquidity constraints or risk limits using modern deep reinforcement machine learning methods. We…
Swing options on the gas market are american style option where daily quantities exercices are constrained and global quantities exerciced each year constrained too. The option holder has to decide each day how much he consumes of the…
Model-based process simulation can be used to derive designs and operating conditions of chemical processes that optimally balance multiple objectives, such as quality, costs, or environmental impacts. This work focuses on identifying…
Risk measures for multivariate financial positions are studied in a utility-based framework. Under a certain incomplete preference relation, shortfall and divergence risk measures are defined as the optimal values of specific set…
We consider the hedging problem where a futures position can be automatically liquidated by the exchange without notice. We derive a semi-closed form for an optimal hedging strategy with dual objectives - to minimise both the variance of…
The rapidly growing hedge fund industry has provided individual and institutional investors with new investment vehicles and styles of management. It has also brought forward a new form of performance contract: hedge fund managers receive…
We present the closed-form solution to the problem of hedging price and quantity risks for energy retailers (ER), using financial instruments based on electricity price and weather indexes. Our model considers an ER who is intermediary in a…
Reducing financial risk is of paramount importance to investors, financial institutions, and corporations. Since the pioneering contribution of Johnson (1960), the optimal hedge ratio based on futures is regularly utilized. The current…
This paper studies the problem of option replication in general stochastic volatility markets with transaction costs, using a new specification for the volatility adjustment in Leland's algorithm \cite{Leland}. We prove several limit…
We consider insurance derivatives depending on an external physical risk process, for example a temperature in a low dimensional climate model. We assume that this process is correlated with a tradable financial asset. We derive optimal…
We solve the problem of super-hedging European or Asian options for discrete-time financial market models where executable prices are uncertain. The risky asset prices are not described by single-valued processes but measurable selections…
This paper presents a framework of imitating the principal investor's behavior for optimal pricing and hedging options. We construct a non-deterministic Markov decision process for modeling stock price change driven by the principal…
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…
In this paper we consider Fourier transform techniques to efficiently compute the Value-at-Risk and the Conditional Value-at-Risk of an arbitrary loss random variable, characterized by having a computable generalized characteristic…
We study the optimal portfolio liquidation problem over a finite horizon in a limit order book with bid-ask spread and temporary market price impact penalizing speedy execution trades. We use a continuous-time modeling framework, but in…
The classical discrete time model of proportional transaction costs relies on the assumption that a feasible portfolio process has solvent increments at each step. We extend this setting in two directions, allowing for convex transaction…