Related papers: Valuation of capital protection options
We consider an insurance company modelling its surplus process by a Brownian motion with drift. Our target is to maximise the expected exponential utility of discounted dividend payments, given that the dividend rates are bounded by some…
The portfolio optimization problem in which the variances of the return rates of assets are not identical is analyzed in this paper using the methodology of statistical mechanical informatics, specifically, replica analysis. We define two…
All the financial practitioners are working in incomplete markets full of unhedgeable risk-factors. Making the situation worse, they are only equipped with the imperfect information on the relevant processes. In addition to the market risk,…
We consider the probabilistic numerical scheme for fully nonlinear PDEs suggested in \cite{cstv}, and show that it can be introduced naturally as a combination of Monte Carlo and finite differences scheme without appealing to the theory of…
The paper summarizes key results of the benchmark approach with a focus on the concept of benchmark-neutral pricing. It applies these results to the pricing of an extreme-maturity European put option on a well-diversified stock index. The…
Proximal policy optimization(PPO) has been proposed as a first-order optimization method for reinforcement learning. We should notice that an exterior penalty method is used in it. Often, the minimizers of the exterior penalty functions…
In this article we consider the surplus process of an insurance company within the Cramer-Lundberg framework. We study the optimal reinsurance strategy and dividend distribution of an insurance company under proportional reinsurance, in…
Pricing financial or real options with arbitrary payoffs in regime-switching models is an important problem in finance. Mathematically, it is to solve, under certain standard assumptions, a general form of optimal stopping problems in…
We present an algorithm producing a dynamic non-self-financing hedging strategy in an incomplete market corresponding to investor-relevant risk criterion. The optimization is a two stage process that first determines admissible model…
An algorithm is proposed to solve robust control problems constrained by partial differential equations with uncertain coefficients, based on the so-called MG/OPT framework. The levels in this MG/OPT hierarchy correspond to discretization…
We propose a methodology for computing single and multi-asset European option prices, and more generally expectations of scalar functions of (multivariate) random variables. This new approach combines the ability of Monte Carlo simulation…
We introduce a new Monte Carlo method by incorporating a guided distribution function to the conventional Monte Carlo method. In this way, the efficiency of Monte Carlo methods is drastically improved. To further speed up the algorithm, we…
We study optimal investment in a financial market having a finite number of assets from a signal processing perspective. We investigate how an investor should distribute capital over these assets and when he should reallocate the…
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…
Constrained Markov decision processes (CMDPs), in which the agent optimizes expected payoffs while keeping the expected cost below a given threshold, are the leading framework for safe sequential decision making under stochastic…
We consider infinite dimensional optimization problems motivated by the financial model called Arbitrage Pricing Theory. Using probabilistic and functional analytic tools, we provide a dual characterization of the super-replication cost.…
We study the problem of optimal liquidity withdrawal for a representative liquidity provider (LP) in an automated market maker (AMM). LPs earn fees from trading activity but are exposed to impermanent loss (IL) due to price fluctuations.…
An efficient conditioning technique, the so-called Brownian Bridge simulation, has previously been applied to eliminate pricing bias that arises in applications of the standard discrete-time Monte Carlo method to evaluate options written on…
Motivated by the prevalence of ``price protection guarantee", which allows a customer who purchased a product in the past to receive a refund from the seller during the so-called price protection period (typically defined as a certain time…
The expanding number of assets offers more opportunities for investors but poses new challenges for modern portfolio management (PM). As a central plank of PM, portfolio selection by expected utility maximization (EUM) faces uncontrollable…