Related papers: Hedging Conditional Value at Risk with Options
Pension schemes all over the world are under increasing pressure to efficiently hedge the longevity risk posed by ageing populations. In this work, we study an optimal investment problem for a defined contribution pension scheme which…
We present a unified framework for computing CVA sensitivities, hedging the CVA, and assessing CVA risk, using probabilistic machine learning meant as refined regression tools on simulated data, validatable by low-cost companion Monte Carlo…
We solve the problem of mean-variance hedging for general semimartingale models via stochastic control methods. After proving that the value process of the associated stochastic control problem has a quadratic structure, we characterize its…
Conditional Asian options are recent market innovations, which offer cheaper and long-dated alternatives to regular Asian options. In contrast with payoffs from regular Asian options which are based on average asset prices, the payoffs from…
Value adjustment of uncollateralized trades is determined within a risk-neutral pricing framework. When hedging such trades, investors cannot freely trade protection on their own name, thus facing an incomplete market. This fact is…
In this paper we study mean-variance hedging under the G-expectation framework. Our analysis is carried out by exploiting the G-martingale representation theorem and the related probabilistic tools, in a contin- uous financial market with…
In this paper, we introduce two novel methods to solve the American-style option pricing problem and its dual form at the same time using neural networks. Without applying nested Monte Carlo, the first method uses a series of neural…
We present a general framework for optimizing the Conditional Value-at-Risk for dynamical systems using stochastic search. The framework is capable of handling the uncertainty from the initial condition, stochastic dynamics, and uncertain…
The duality between the robust (or equivalently, model independent) hedging of path dependent European options and a martingale optimal transport problem is proved. The financial market is modeled through a risky asset whose price is only…
We propose a general approach for supervised learning with structured output spaces, such as combinatorial and polyhedral sets, that is based on minimizing estimated conditional risk functions. Given a loss function defined over pairs of…
Value-at-risk (VaR) has been playing the role of a standard risk measure since its introduction. In practice, the delta-normal approach is usually adopted to approximate the VaR of portfolios with option positions. Its effectiveness,…
We study a quadratic hedging problem for a sequence of contingent claims with random weights in discrete time. We obtain the optimal hedging strategy explicitly in a recursive representation, without imposing the non-degeneracy (ND)…
We examine the possibility of incorporating information or views of market movements during the holding period of a portfolio, in the hedging of European options with respect to the underlying. Given a fixed holding period interval, we…
In this paper we first introduce two new financial products: stock loan and capped stock loan. Then we develop a pure variational inequality method to establish explicitly the values of these stock loans. Finally, we work out ranges of fair…
This paper develops a model for option market making in which the hedging activity of the market maker generates price impact on the underlying asset. The option order flow is modeled by Cox processes, with intensities depending on the…
Theoretical models applied to option pricing should take into account the empirical characteristics of the underlying financial time series. In this paper, we show how to price basket options when assets follow a shifted log-normal process…
The main objective of this paper is to present an algorithm of pricing perpetual American put options with asset-dependent discounting. The value function of such an instrument can be described as \begin{equation*}…
In this paper, we address the question of the optimal Delta and Vega hedging of a book of exotic options when there are execution costs associated with the trading of vanilla options. In a framework where exotic options are priced using a…
The NA condition is one of the pillars supporting the classical theory of financial mathematics. We revisit this condition for financial market models where a dynamic risk-measure defined on $L^0$ is fixed to characterize the family of…
For a linear combination of random variables, fix some confidence level and consider the quantile of the combination at this level. We are interested in the partial derivatives of the quantile with respect to the weights of the random…