Related papers: Indifference pricing for Contingent Claims: Large …
It is well known that the minimal superhedging price of a contingent claim is too high for practical use. In a continuous-time model uncertainty framework, we consider a relaxed hedging criterion based on acceptable shortfall risks.…
In this paper, we prove the global risk optimality of the hedging strategy of contingent claim, which is explicitly (or called semi-explicitly) constructed for an incomplete financial market with external risk factors of non-Gaussian…
With model uncertainty characterized by a convex, possibly non-dominated set of probability measures, the agent minimizes the cost of hedging a path dependent contingent claim with given expected success ratio, in a discrete-time,…
Our goal is to analyze the system of Hamilton-Jacobi-Bellman equations arising in derivative securities pricing models. The European style of an option price is constructed as a difference of the certainty equivalents to the value functions…
We perform a stability analysis for the utility maximization problem in a general semimartingale model where both liquid and illiquid assets (random endowments) are present. Small misspecifications of preferences (as modeled via expected…
We study the most famous example of a large financial market: the Arbitrage Pricing Model, where investors can trade in a one-period setting with countably many assets admitting a factor structure. We consider the problem of maximising…
We study the two-times differentiability of the value functions of the primal and dual optimization problems that appear in the setting of expected utility maximization in incomplete markets. We also study the differentiability of the…
We develop a nonparametric approach to identify and estimate consumer preferences and unobserved heterogeneity under nonlinear price schedules. Leveraging variation across multiple price schedules, we show that both the utility function and…
We study revenue maximization when a seller offers $k$ identical units to ex ante heterogeneous, unit-demand buyers. While anonymous pricing can be $\Theta(\log k)$ worse than optimal in general multi-unit environments, we show that this…
In various markets where sellers compete in price, price oscillations are observed rather than convergence to equilibrium. Such fluctuations have been empirically observed in the retail market for gasoline, in airline pricing and in the…
We study the dual formulation of the utility maximization problem in incomplete markets when the utility function is finitely valued on the whole real line. We extend the existing results in this literature in two directions. First, we…
We study equilibrium in hedonic markets, when consumers and suppliers have reservation utilities, and the utility functions are separable with respect to price. There is one indivisible good, which comes in different qualities; each…
In this paper, we construct the utility-based optimal hedging strategy for a European-type option in the Almgren-Chriss model with temporary price impact. The main mathematical challenge of this work stems from the degeneracy of the second…
We introduce a criterion how to price derivatives in incomplete markets, based on the theory of growth optimal strategy in repeated multiplicative games. We present reasons why these growth-optimal strategies should be particularly relevant…
We discuss utility based pricing and hedging of jump diffusion processes with emphasis on the practical applicability of the framework. We point out two difficulties that seem to limit this applicability, namely drift dependence and…
In this paper we ask whether, given a stock market and an illiquid derivative, there exists arbitrage-free prices at which an utility-maximizing agent would always want to buy the derivative, irrespectively of his own initial endowment of…
In many markets, like electricity or cloud computing markets, providers incur large costs for keeping sufficient capacity in reserve to accommodate demand fluctuations of a mostly fixed user base. These costs are significantly affected by…
The problem of robust utility maximization in an incomplete market with volatility uncertainty is considered, in the sense that the volatility of the market is only assumed to lie between two given bounds. The set of all possible models…
We study the identification and estimation of first-price auction models where bidders have ambiguity about the valuation distribution and their preferences are represented by maxmin expected utility. When entry is exogenous, the…
We present here a regress later based Monte Carlo approach that uses neural networks for pricing high-dimensional contingent claims. The choice of specific architecture of the neural networks used in the proposed algorithm provides for…