Related papers: Optimal Static Quadratic Hedging
We study a dynamic game where an expert sends probabilistic forecasts to a decision-maker. The decision-maker verifies these forecasts using a calibration test based on past data. How should the expert send forecasts to maximize her payoff…
Consider an American option that pays G(X^*_t) when exercised at time t, where G is a positive increasing function, X^*_t := \sup_{s\le t}X_s, and X_s is the price of the underlying security at time s. Assuming zero interest rates, we show…
In this paper, we consider the adaptive linear quadratic Gaussian control problem, where both the linear transformation matrix of the state $A$ and the control gain matrix $B$ are unknown. The proposed adaptive optimal control only assumes…
We analyze the errors arising from discrete readjustment of the hedging portfolio when hedging options in exponential Levy models, and establish the rate at which the expected squared error goes to zero when the readjustment frequency…
This paper investigates dynamic and static fund separations and their stability for long-term optimal investments under three model classes. An investor maximizes the expected utility with constant relative risk aversion under an incomplete…
In complete markets, there are risky assets and a riskless asset. It is assumed that the riskless asset and the risky asset are traded continuously in time and that the market is frictionless. In this paper, we propose a new method for…
We propose a new risk sensitive reinforcement learning approach for the dynamic hedging of options. The approach focuses on the minimization of the tail risk of the final P&L of the seller of an option. Different from most existing…
In this paper we solve the discrete time mean-variance hedging problem when asset returns follow a multivariate autoregressive hidden Markov model. Time dependent volatility and serial dependence are well established properties of financial…
We introduce a novel framework for computing optimal randomized security policies in networked domains which extends previous approaches in several ways. First, we extend previous linear programming techniques for Stackelberg security games…
Suppose an investor aims at Delta hedging a European contingent claim $h(S(T))$ in a jump-diffusion model, but incorrectly specifies the stock price's volatility and jump sensitivity, so that any hedging strategy is calculated under a…
We introduce a price impact model which accounts for finite market depth, tightness and resilience. Its coupled bid- and ask-price dynamics induce convex liquidity costs. We provide existence of an optimal solution to the classical problem…
This paper is concerned with the study of insurance related derivatives on financial markets that are based on non-tradable underlyings, but are correlated with tradable assets. We calculate exponential utility-based indifference prices,…
This study introduces a dynamic investment framework to enhance portfolio management in volatile markets, offering clear advantages over traditional static strategies. Evaluates four conventional approaches : equal weighted, minimum…
We analyze the valuation partial differential equation for European contingent claims in a general framework of stochastic volatility models where the diffusion coefficients may grow faster than linearly and degenerate on the boundaries of…
In this paper, we present a two-stage stochastic international portfolio optimisation model to find an optimal allocation for the combination of both assets and currency hedging positions. Our optimisation model allows a "currency overlay",…
We present an adaptive approach for valuing the European call option on assets with stochastic volatility. The essential feature of the method is a reduction of uncertainty in latent volatility due to a Bayesian learning procedure. Starting…
We study the problem of optimally hedging the price exposure of liquidity positions in constant-product automated market makers (AMMs) when the hedge is funded by collateralized borrowing. A liquidity provider (LP) who borrows tokens to…
In this work, I address the issue of forming riskless hedge in the continuous time option pricing model with stochastic stock volatility. I show that it is essential to verify whether the replicating portfolio is self-financing, in order…
We provide a model-free pricing-hedging duality in continuous time. For a frictionless market consisting of $d$ risky assets with continuous price trajectories, we show that the purely analytic problem of finding the minimal superhedging…
We consider robust pricing and hedging for options written on multiple assets given market option prices for the individual assets. The resulting problem is called the multi-marginal martingale optimal transport problem. We propose two…