Related papers: A New Set of Financial Instruments

In recent years, a market for mortality derivatives began developing as a way to handle systematic mortality risk, which is inherent in life insurance and annuity contracts. Systematic mortality risk is due to the uncertain development of…

We apply the concepts of utility based pricing and hedging of derivatives in stochastic volatility markets and introduce a new class of "reciprocal affine" models for which the indifference price and optimal hedge portfolio for pure…

This study presents a deep reinforcement learning approach for global hedging of long-term financial derivatives. A similar setup as in Coleman et al. (2007) is considered with the risk management of lookback options embedded in guarantees…

Derivatives, as a critical class of financial instruments, isolate and trade the price attributes of risk assets such as stocks, commodities, and indices, aiding risk management and enhancing market efficiency. However, traditional hedging…

The third moment variation of a financial asset return process is defined by the quadratic covariation between the return and square return processes. The skew and fat tail risk of an underlying asset can be hedged using a third moment…

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…

We investigate the problem of pricing and hedging derivatives of Electricity Futures contract when the underlying asset is not available. We propose to use a cross hedging strategy based on the Futures contract covering the larger delivery…

This study delves into the intricate realm of risk evaluation within the domain of specific financial derivatives, notably options. Unlike other financial instruments, like bonds, options are susceptible to broader risks. A distinctive…

Freight rate derivatives constitute a very popular financial tool in shipping industry, that allows to the market participants and the individuals operating in the field, to reassure their financial positions against the risk occurred by…

We consider a continuous-time financial market with no arbitrage and no transactions costs. In this setting, we introduce two types of perpetual contracts, one in which the payoff to the long side is a fixed function of the underlyers and…

This article presents a deep reinforcement learning approach to price and hedge financial derivatives. This approach extends the work of Guo and Zhu (2017) who recently introduced the equal risk pricing framework, where the price of a…

We present an actor-critic-type reinforcement learning algorithm for solving the problem of hedging a portfolio of financial instruments such as securities and over-the-counter derivatives using purely historic data. The key characteristics…

We study a market model in which the volatility of the stock may jump at a random time from a fixed value to another fixed value. This model was already described in the literature. We present a new approach to the problem, based on partial…

Dynamic hedging strategies are essential for effective risk management in derivatives markets, where volatility and market sentiment can greatly impact performance. This paper introduces a novel framework that leverages large language…

In this chapter we first briefly review the existing approaches to hedging in rough volatility models. Next, we present a simple but general result which shows that in a one-factor rough stochastic volatility model, any option may be…

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 develop a model for indifference pricing in derivatives markets where price quotes have bid-ask spreads and finite quantities. The model quantifies the dependence of the prices and hedging portfolios on an investor's beliefs, risk…

This paper studies the equal risk pricing (ERP) framework for the valuation of European financial derivatives. This option pricing approach is consistent with global trading strategies by setting the premium as the value such that the…

We study hedging and pricing of unattainable contingent claims in a non-Markovian regime-switching financial model. Our financial market consists of a bank account and a risky asset whose dynamics are driven by a Brownian motion and a…

It is well documented that a model for the underlying asset price process that seeks to capture the behaviour of the market prices of vanilla options needs to exhibit both diffusion and jump features. In this paper we assume that the asset…