Related papers: Hedging with Temporary Price Impact
The construction of replication strategies for contingent claims in the presence of risk and market friction is a key problem of financial engineering. In real markets, continuous replication, such as in the model of Black, Scholes and…
We study the problem of option pricing and hedging strategies within the frame-work of risk-return arguments. An economic agent is described by a utility function that depends on profit (an expected value) and risk (a variance). In the…
We discuss the asymptotic behaviour of risk-based indifference prices of European contingent claims in discrete-time financial markets under volatility uncertainty as the number of intermediate trading periods tends to infinity. The…
We consider an optimal liquidation problem with instantaneous price impact and stochastic resilience for small instantaneous impact factors. Within our modelling framework, the optimal portfolio process converges to the solution of an…
Prices of tradables can only be expressed relative to each other at any instant of time. This fundamental fact should therefore also hold for contigent claims, i.e. tradable instruments, whose prices depend on the prices of other tradables.…
We combine forward investment performance processes and ambiguity averse portfolio selection. We introduce the notion of robust forward criteria which addresses the issues of ambiguity in model specification and in preferences and…
We present a numerically efficient approach for learning a risk-neutral measure for paths of simulated spot and option prices up to a finite horizon under convex transaction costs and convex trading constraints. This approach can then be…
We develop a general theory of risk measures that determines the optimal amount of capital to raise and invest in a portfolio of reference traded securities in order to meet a pre-specified regulatory requirement. The distinguishing feature…
We study scaled trinomial models converging to the Black--Scholes model, and analyze exponential certainty-equivalent prices for path-dependent European options. As the number of trading dates $n$ tends to infinity and the risk aversion is…
We study the effect of parameters uncertainties on a stochastic diffusion model, in particular the impact on the pricing of contingent claims, thanks to Dirichlet Forms methods. We apply recent techniques, developed by Bouleau, to hedging…
We investigate the portfolio execution problem under a framework in which volatility and liquidity are both uncertain. In our model, we assume that a multidimensional Markovian stochastic factor drives both of them. Moreover, we model…
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…
This paper investigates the hedging performance of pegged foreign exchange market in a regime switching (RS) model introduced in a recent paper by Drapeau, Wang and Wang (2019). We compare two prices, an exact solution and first order…
We propose a hybridizable discontinuous Galerkin (HDG) finite element method to approximate the solution of the time dependent drift-diffusion problem. This system involves a nonlinear convection diffusion equation for the electron…
We consider the hedging error of a derivative due to discrete trading in the presence of a drift in the dynamics of the underlying asset. We suppose that the trader wishes to find rebalancing times for the hedging portfolio which enable him…
We generalize classical results on the existence of optimal portfolios in discrete time frictionless market models to models with capital gains taxes. We consider the realistic but mathematically challenging rule that losses do not trigger…
In markets with transaction costs, consistent price systems play the same role as martingale measures in frictionless markets. We prove that if a continuous price process has conditional full support, then it admits consistent price systems…
A large body of empirical literature has shown that market impact of financial prices is transient. However, from a theoretical standpoint, the origin of this temporary nature is still unclear. We show that an implied transient impact…
We propose a generalization of the Bass diffusion model in discrete-time that explicitly models the effect of price in adoption. Our model is different from earlier price-incorporated models and fits well to adoption data for various…
We consider the mean-variance hedging problem under partial Information. The underlying asset price process follows a continuous semimartingale and strategies have to be constructed when only part of the information in the market is…