Related papers: Robust Trading of Implied Skew
We present an approach, based on deep neural networks, that allows identifying robust statistical arbitrage strategies in financial markets. Robust statistical arbitrage strategies refer to trading strategies that enable profitable trading…
This paper studies a robust continuous-time Markowitz portfolio selection pro\-blem where the model uncertainty carries on the covariance matrix of multiple risky assets. This problem is formulated into a min-max mean-variance problem over…
We present a robust Deep Hedging framework for the pricing and hedging of option portfolios that significantly improves training efficiency and model robustness. In particular, we propose a neural model for training model embeddings which…
We describe the pricing and hedging of financial options without the use of probability using rough paths. By encoding the volatility of assets in an enhancement of the price trajectory, we give a pathwise presentation of the replication of…
We consider an asset whose risk-neutral dynamics are described by a general class of local-stochastic volatility models and derive a family of asymptotic expansions for European-style option prices and implied volatilities. Our implied…
Generating realistic synthetic option prices requires implied volatility as an input, yet implied volatility is itself derived from observed option prices, creating a circular dependency that limits synthetic data for machine-learning and…
It is essential to incorporate the impact of investor behavior when modeling the dynamics of asset returns. In this paper, we reconcile behavioral finance and rational finance by incorporating investor behavior within the framework of…
A leveraged exchange traded fund (LETF) is an exchange traded fund that uses financial derivatives to amplify the price changes of a basket of goods. In this paper, we consider the robust hedging of European options on a LETF, finding…
We propose a flexible framework for hedging a contingent claim by holding static positions in vanilla European calls, puts, bonds, and forwards. A model-free expression is derived for the optimal static hedging strategy that minimizes the…
We revisit the ``Smile Dynamics'' problem, which consists in relating the implied leverage (i.e. the correlation of the at-the-money volatility with the returns of the underlying) and the skew of the option smile. The ratio between these…
Most models for barrier pricing are designed to let a market maker tune the model-implied covariance between moves in the asset spot price and moves in the implied volatility skew. This is often implemented with a local…
We design a novel calibration procedure that is designed to handle the specific characteristics of options on cryptocurrency markets, namely large bid-ask spreads and the possibility of missing or incoherent prices in the considered data…
This paper introduces a novel robust trading paradigm, called \textit{multi-double linear policies}, situated within a \textit{generalized} lattice market. Distinctively, our framework departs from most existing robust trading strategies,…
First, we show that implied normal volatility is intimately linked with the incomplete Gamma function. Then, we deduce an expansion on implied normal volatility in terms of the time-value of a European call option. Then, we formulate an…
We study in details the skew of stock option smiles, which is induced by the so-called leverage effect on the underlying -- i.e. the correlation between past returns and future square returns. This naturally explains the anomalous…
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…
We consider statistical estimation of superhedging prices using historical stock returns in a frictionless market with d traded assets. We introduce a plugin estimator based on empirical measures and show it is consistent but lacks suitable…
This paper performs the numerical analysis and the computation of a Spread option in a market with imperfect liquidity. The number of shares traded in the stock market has a direct impact on the stock's price. Thus, we consider a…
We study the problem of optimal pricing and hedging of a European option written on an illiquid asset $Z$ using a set of proxies: a liquid asset $S$, and $N$ liquid European options $P_i$, each written on a liquid asset $Y_i, i=1,N$. We…
Implied volatility IV is a key metric in financial markets, reflecting market expectations of future price fluctuations. Research has explored IV's relationship with moneyness, focusing on its connection to the implied Hurst exponent H. Our…