Related papers: XVA at the Exercise Boundary
We price European options in a class of models in which the volatility of the underlying risky asset depends on the short rate of interest. Our study results in an explicit pricing formula that depends on knowledge of a characteristic…
We revisit optimal execution of an active portfolio in the presence of slippage (aka linear, proportional, or absolute-value) costs. Market efficiency implies a close balance between active alphas and trading costs, so even small changes to…
Market Basket Analysis (MBA) is a popular technique to identify associations between products, which is crucial for business decision making. Previous studies typically adopt conventional frequent itemset mining algorithms to perform MBA.…
We study an option pricing framework that accounts for the price impact of an earnings announcement (EA), and analyze the behavior of the implied volatility surface prior to the event. On the announcement date, we incorporate a random jump…
Today, Internet involves many actors who are making revenues on it (operators, companies, service providers,...). It is therefore important to be able to make fair decisions in this large-scale and highly competitive economical ecosystem.…
This work focuses on the dynamic hedging of financial derivatives, where a reinforcement learning algorithm is designed to minimize the variance of the delta hedging process. In contrast to previous research in this area, we apply…
In complex systems, decision makers often have to consider qualitatively different risks when choosing between options. Do their strategies of integrating these risks depend on the framing of problem contents? In the present study,…
We compare static arbitrage price bounds on basket calls, i.e. bounds that only involve buy-and-hold trading strategies, with the price range obtained within a multi-variate generalization of the Black-Scholes model. While there is no gap…
American options are financial instruments that can be exercised at any time before expiration. In this paper we study the problem of pricing this kind of derivatives within a framework in which some of the properties --volatility and…
In this paper we study the pricing of exchange options when underlying assets have stochastic volatility and stochastic correlation. An approximation using a closed-form approximation based on a Taylor expansion of the conditional price is…
Trading pressure from one asset can move the price of another, a phenomenon referred to as cross impact. Using tick-by-tick data spanning 5 years for 500 assets listed in the United States, we identify the features that make cross-impact…
During the COVID-19 pandemic, many institutions have announced that their counterparties are struggling to fulfill contracts.Therefore, it is necessary to consider the counterparty default risk when pricing options. After the 2008 financial…
By studying all the trades and best bids/asks of ultra high frequency snapshots recorded from the order books of a basket of 10 futures assets, we bring qualitative empirical evidence that the impact of a single trade depends on the…
In baseball, every play on the field is quantitatively evaluated and has an effect on individual and team strategies. The weighted on base average (wOBA) is well known as a measure of an batter's hitting contribution. However, this measure…
Conditioning on some set of confounders that causally affect both treatment and outcome variables can be sufficient for eliminating bias introduced by all such confounders when estimating causal effect of the treatment on the outcome from…
The virtue of an American option is that it can be exercised at any time. This right is particularly valuable when there is model uncertainty. Yet almost all the extensive literature on American options assumes away model uncertainty. This…
Formulating a real-world problem under the Reinforcement Learning framework involves non-trivial design choices, such as selecting a discount factor for the learning objective (discounted cumulative rewards), which articulates the planning…
Option written on several foreign exchange rates (FXRs) depends on correlation between the rates. To evaluate the option, historical estimates for correlations can be used but usually they are not stable. More significantly, pricing of the…
The composition of natural liquidity has been changing over time. An analysis of intraday volumes for the S&P500 constituent stocks illustrates that (i) volume surprises, i.e., deviations from their respective forecasts, are correlated…
In this paper, an integral equation representation for the early exercise boundary of an American option contract is considered. Thus far, a number of different techniques have been proposed in the literature to obtain a variety of integral…