Related papers: XVA at the Exercise Boundary
We study the Shapley value in weighted voting games. The Shapley value has been used as an index for measuring the power of individual agents in decision-making bodies and political organizations, where decisions are made by a majority vote…
Commitment devices are powerful tools that can influence and incentivise certain behaviours by linking them to rewards or punishments. These devices are particularly useful in decision-making, as they can steer individuals towards specific…
This paper studies the switching of trading strategies and its effect on the market volatility in a continuous double auction market. We describe the behavior when some uninformed agents, who we call switchers, decide whether or not to pay…
The distribution of a time integral of geometric Brownian motion is not well understood. To price an Asian option and to obtain measures of its dependence on the parameters of time, strike price, and underlying market price, it is essential…
We consider the impact of ambiguity on the optimal timing of a class of two-dimensional integral option contracts when the exercise payoff is a positively homogeneous measurable function. Hence, the considered class of exercise payoffs…
This article consolidates and extends past work on derivative pricing adjustments, including XVA, by providing an encapsulating representation of the adjustment between any two derivative pricing functions, within an Ito SDE/parabolic PDE…
Option pricing is mainly based on ideal market conditions which are well represented by the Geometric Brownian Motion (GBM) as market model. We study the effect of non-ideal market conditions on the price of the option. We focus our…
The importance of counterparty credit risk to the derivative contracts was demonstrated consistently throughout the financial crisis of 2008. Accurate valuation of Credit value adjustment (CVA) is essential to reflect the economic values of…
We consider economic obstacles that limit the reliability and accuracy of value-at-risk (VaR). Investors who manage large market transactions should take into account the impact of the randomness of large trade volumes on predictions of…
We derive behavioral finance option pricing formulas consistent with the rational dynamic asset pricing theory. In the existing behavioral finance option pricing formulas, the price process of the representative agent is not a…
We present three models of stock price with time-dependent interest rate, dividend yield, and volatility, respectively, that allow for explicit forms of the optimal exercise boundary of the finite maturity American put option. The optimal…
Option pricing is the most elemental challenge of mathematical finance. Knowledge of the prices of options at every strike is equivalent to knowing the entire pricing distribution for a security, as derivatives contingent on the security…
Estimation of the intensity of a point process is considered within a nonparametric framework. The intensity measure is unknown and depends on covariates, possibly many more than the observed number of jumps. Only a single trajectory of the…
In this note, we introduce how to use Volatility Index (VIX) for postprocessing quantitative strategies so as to increase the Sharpe ratio and reduce trading risks. The signal from this procedure is an indicator of trading or not on a daily…
We derive the arbitrage gains or, equivalently, Loss Versus Rebalancing (LVR) for arbitrage between \textit{two imperfectly liquid} markets, extending prior work that assumes the existence of an infinitely liquid reference market. Our…
Game (Israeli) options in a multi-asset market model with proportional transaction costs are studied in the case when the buyer is allowed to exercise the option and the seller has the right to cancel the option gradually at a mixed (or…
Suppose Xt is either a regular exponential type Levy process or a Levy process with a bounded variation jumps measure. The distribution of the extrema of Xt play a crucial role in many financial and actuarial problems. This article employs…
We consider the problem of computing the Credit Value Adjustment ({CVA}) of a European option in presence of the Wrong Way Risk ({WWR}) in a default intensity setting. Namely we model the asset price evolution as solution to a linear…
This article prices OTC derivatives with either an exogenously determined initial margin profile or endogenously approximated initial margin. In the former case, margin valuation adjustment (MVA) is defined as the liability-side discounted…
A variance swap is a derivative with a path-dependent payoff which allows investors to take positions on the future variability of an asset. In the idealised setting of a continuously monitored variance swap written on an asset with…