Related papers: Approximate hedging problem with transaction costs…

In this paper we introduce a deep learning method for pricing and hedging American-style options. It first computes a candidate optimal stopping policy. From there it derives a lower bound for the price. Then it calculates an upper bound, a…

In this paper, we consider option pricing in a framework of the fractional Heston-type model with $H>1/2$. As it is impossible to obtain an explicit formula for the expectation $\mathbb E f(S_T)$ in this case, where $S_T$ is the asset price…

We develop a theory for option pricing with perfect hedging in an inefficient market model where the underlying price variations are autocorrelated over a time tau. This is accomplished by assuming that the underlying noise in the system is…

Optimal trading strategies for pairs trading have been studied by models that try to find either optimal shares of stocks by assuming no transaction costs or optimal timing of trading fixed numbers of shares of stocks with transaction…

Option pricing is an integral part of modern financial risk management. The well-known Black and Scholes (1973) formula is commonly used for this purpose. This paper is an attempt to extend their work to a situation in which the…

In the present paper, we study the optimal execution problem under stochastic price recovery based on limit order book dynamics. We model price recovery after execution of a large order by accelerating the arrival of the refilling order,…

Stochastic volatility (SV) and local stochastic volatility (LSV) processes can be used to model the evolution of various financial variables such as FX rates, stock prices, and so on. Considerable efforts have been devoted to pricing…

In this paper we consider a discrete-time risk sensitive portfolio optimization over a long time horizon with proportional transaction costs. We show that within the log-return i.i.d. framework the solution to a suitable Bellman equation…

The question of pricing and hedging a given contingent claim has a unique solution in a complete market framework. When some incompleteness is introduced, the problem becomes however more difficult. Several approaches have been adopted in…

We present an approximation method based on the mixing formula (Hull & White 1987, Romano & Touzi 1997) for pricing European options in Barndorff-Nielsen and Shephard models. This approximation is based on a Taylor expansion of the option…

Finding Bertram's optimal trading strategy for a pair of cointegrated assets following the Ornstein--Uhlenbeck price difference process can be formulated as an unconstrained convex optimization problem for maximization of expected profit…

This paper considers the finite horizon portfolio rebalancing problem in terms of mean-variance optimization, where decisions are made based on current information on asset returns and transaction costs. The study's novelty is that the…

This paper considers the problem of minimizing a convex expectation function with a set of inequality convex expectation constraints. We present a computable stochastic approximation type algorithm, namely the stochastic linearized proximal…

We consider a class of learning problems in which an agent liquidates a risky asset while creating both transient price impact driven by an unknown convolution propagator and linear temporary price impact with an unknown parameter. We…

We revisit an absolutely-continuous version of the stochastic control problem driven by a L\'evy process. A strategy must be absolutely continuous with respect to the Lebesgue measure and the running cost function is assumed to be convex.…

A common assumption in financial engineering is that the market price for any derivative coincides with an objectively defined risk-neutral price - a plausible assumption only if traders collectively possess objective knowledge about the…

In this short note, we consider mean-variance optimized portfolios with transaction costs. We show that introducing quadratic transaction costs makes the optimization problem more difficult than using linear transaction costs. The reason…

It is well documented that a model for the underlying asset price process that seeks to capture the behaviour of the market prices of vanilla options needs to exhibit both diffusion and jump features. In this paper we assume that the asset…

This paper studies arbitrage pricing theory in financial markets with implicit transaction costs. We extend the existing theory to include the more realistic possibility that the price at which the investors trade is dependent on the traded…

We study a novel pricing operator for complete, local martingale models. The new pricing operator guarantees put-call parity to hold for model prices and the value of a forward contract to match the buy-and-hold strategy, even if the…