Related papers: Indifference pricing for Contingent Claims: Large …
We study a single-buyer pricing problem with unreliable side information, motivated by the increasing use of AI-assisted decision-making and LLM-based predictions. The seller observes a private sample that may be either accurate (coinciding…
We consider thin incomplete financial markets, where traders with heterogeneous preferences and risk exposures have motive to behave strategically regarding the demand schedules they submit, thereby impacting prices and allocations. We…
Standard nonlinear regression is commonly used when modeling indifference points due to its ability to closely follow observed data, resulting in a good model fit. However, standard nonlinear regression currently lacks a reasonable…
We study the dynamics of the exponential utility indifference value process C(B;\alpha) for a contingent claim B in a semimartingale model with a general continuous filtration. We prove that C(B;\alpha) is (the first component of) the…
Weather, technological and regulatory uncertainties expose actors in highly renewable electricity markets to substantial price and volume risks. Two-way Contracts for Difference (CfDs) can mitigate these risks. They stipulate payments…
We study the dynamic indifference pricing with ambiguity preferences. For this, we introduce the dynamic expected utility with ambiguity via the nonlinear expectation--G-expectation, introduced by Peng (2007). We also study the risk…
We consider a problem of optimal investment with intermediate consumption and random endowment in an incomplete semimartingale model of a financial market. We establish the key assertions of the utility maximization theory assuming that…
This paper studies stability of the exponential utility maximization when there are small variations on agent's utility function. Two settings are considered. First, in a general semimartingale model where random endowments are present, a…
We study the allocation of indivisible goods among groups of agents using well-known fairness notions such as envy-freeness and proportionality. While these notions cannot always be satisfied, we provide several bounds on the optimal…
We study super--replication of European contingent claims in an illiquid market with insider information. Illiquidity is captured by quadratic transaction costs and insider information is modeled by an investor who can peek into the future.…
How should a buyer design procurement mechanisms when suppliers' costs are unknown, and the buyer does not have a prior belief? We demonstrate that simple mechanisms - that share a constant fraction of the buyer utility with the seller -…
Risk-neutral pricing dictates that the discounted derivative price is a martingale in a measure equivalent to the economic measure. The residual ambiguity for incomplete markets is here resolved by minimising the entropy of the price…
This paper studies the utility maximization on the terminal wealth with random endowments and proportional transaction costs. To deal with unbounded random payoffs from some illiquid claims, we propose to work with the acceptable portfolios…
We consider the explicit introduction of firms' choice of location to Varian's model of sales for a two-stage spatial competition model based on a standard Hotelling's linear city model. This model is the formalization of Varian's model of…
Dynamic pricing of goods in a competitive environment to maximize revenue is a natural objective and has been a subject of research over the years. In this paper, we focus on a class of markets exhibiting the substitutes property with…
We use the theory of large deviations to study the pricing of investment-grade tranches of synthetic CDO's. In this paper, we consider a heterogeneous pool of names. Our main tool is a large-deviations analysis which allows us to precisely…
Recovering and distinguishing between the strict-preference, indifference and/or indecisiveness parts of a decision maker's preferences is a challenging task but also important for testing theory and conducting welfare analysis. This paper…
This paper studies an $\alpha$-robust utility maximization problem where an investor faces an intractable claim -- an exogenous contingent claim with known marginal distribution but unspecified dependence structure with financial market…
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 investigate the Merton portfolio management problem in the context of non-exponential discounting. This gives rise to time-inconsistency of the decision-maker. If the decision-maker at time t=0 can commit his/her…