Related papers: Valuation of capital protection options
We propose a versatile Monte-Carlo method for pricing and hedging options when the market is incomplete, for an arbitrary risk criterion (chosen here to be the expected shortfall), for a large class of stochastic processes, and in the…
We propose a novel portfolio selection approach that manages to ease some of the problems that characterise standard expected utility maximisation. The optimal portfolio is no longer defined as the extremum of a suitably chosen utility…
Constant Proportion Portfolio Insurance (CPPI) is an investment strategy designed to give participation in the performance of a risky asset while protecting the invested capital. This protection is however not perfect and the gap risk must…
Financial derivatives are contracts that can have a complex payoff dependent upon underlying benchmark assets. In this work, we present a quantum algorithm for the Monte Carlo pricing of financial derivatives. We show how the relevant…
This paper concerns the numerical solution of a fully nonlinear parabolic double obstacle problem arising from a finite portfolio selection with proportional transaction costs. We consider the optimal allocation of wealth among multiple…
Financial derivative pricing is a significant challenge in finance, involving the valuation of instruments like options based on underlying assets. While some cases have simple solutions, many require complex classical computational methods…
Traders are often faced with large block orders in markets with limited liquidity and varying volatility. Executing the entire order at once usually incurs a large trading cost because of this limited liquidity. In order to minimize this…
In this work we investigate the optimal proportional reinsurance-investment strategy of an insurance company which wishes to maximize the expected exponential utility of its terminal wealth in a finite time horizon. Our goal is to extend…
We develop the idea of using Monte Carlo sampling of random portfolios to solve portfolio investment problems. In this first paper we explore the need for more general optimization tools, and consider the means by which constrained random…
The decumulation of a defined contribution (DC) pension plan is well known to be one of the hardest problems in finance. We model this decumulation challenge as an optimal stochastic control problem. The control problem is solved, at each…
Hedge fund managers with the first-loss scheme charge a management fee, a performance fee and guarantee to cover a certain amount of investors' potential losses. We study how parties can choose a mutually preferred first-loss scheme in a…
We introduce a new method to price American-style options on underlying investments governed by stochastic volatility (SV) models. The method does not require the volatility process to be observed. Instead, it exploits the fact that the…
In this paper, we combine modern portfolio theory and option pricing theory so that a trader who takes a position in a European option contract and the underlying assets can construct an optimal portfolio such that at the moment of the…
Under the assumption of no-arbitrage, the pricing of American and Bermudan options can be casted into optimal stopping problems. We propose a new adaptive simulation based algorithm for the numerical solution of optimal stopping problems in…
In this paper, we propose a novel investment strategy for portfolio optimization problems. The proposed strategy maximizes the expected portfolio value bounded within a targeted range, composed of a conservative lower target representing a…
We discuss two numerical methods, based on a path integral approach described in a previous paper (I), for solving the stochastic equations underlying the financial markets: the Monte Carlo approach, and the Green function deterministic…
In this paper, we present a probabilistic numerical algorithm combining dynamic programming, Monte Carlo simulations and local basis regressions to solve non-stationary optimal multiple switching problems in infinite horizon. We provide the…
We consider the problem of pricing path-dependent options on a basket of underlying assets using simulations. As an example we develop our studies using Asian options. Asian options are derivative contracts in which the underlying variable…
Pricing options is an important problem in financial engineering. In many scenarios of practical interest, financial option prices associated to an underlying asset reduces to computing an expectation w.r.t.~a diffusion process. In general,…
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…