Related papers: A New Set of Financial Instruments

We study the pricing and hedging of derivative securities with uncertainty about the volatility of the underlying asset. Rather than taking all models from a prespecified class equally seriously, we penalise less plausible ones based on…

Financial options are contracts that specify the right to buy or sell an underlying asset at a strike price by an expiration date. Standard exchanges offer options of predetermined strike values and trade options of different strikes…

As markets have digitized, the number of tradable products has skyrocketed. Algorithmically constructed portfolios of these assets now dominate public and private markets, resulting in a combinatorial explosion of tradable assets. In this…

In the paper, the martingales and super-martingales relative to a regular set of measures are systematically studied. The notion of local regular super-martingale relative to a set of equivalent measures is introduced and the necessary and…

In this paper we introduce a simple continuous-time asset pricing framework, based on general multi-dimensional diffusion processes, that combines semi-analytic pricing with a nonlinear specification for the market price of risk. Our…

In normal times, it is assumed that financial institutions operating in non-overlapping sectors have complementary and distinct outcomes, typically reflected in mostly uncorrelated outcomes and asset returns. Such is the reasoning behind…

Financial market forecasting remains a formidable challenge despite the surge in computational capabilities and machine learning advancements. While numerous studies have underscored the precision of computer-generated market predictions,…

Everlasting options, a relatively new class of perpetual financial derivatives, have emerged to tackle the challenges of rolling contracts and liquidity fragmentation in decentralized finance markets. This paper offers an in-depth analysis…

This paper studies dynamic asset allocation with interest rate risk and several sources of ambiguity. The market consists of a risk-free asset, a zero-coupon bond (both determined by a Vasicek model), and a stock. There is ambiguity about…

We derive integral tests for the existence and absence of arbitrage in a financial market with one risky asset which is either modeled as stochastic exponential of an Ito process or a positive diffusion with Markov switching. In particular,…

We study a notion of good-deal hedging, that corresponds to good-deal valuation for generalized good-deal constraints. Under model uncertainty about the market prices of risk of hedging assets, a robust approach leads to a reduction or even…

Forecasting the volatility of financial assets is essential for various financial applications. This paper addresses the challenging task of forecasting the volatility of financial assets with limited historical data, such as new issues or…

This work studies the dynamic risk management of the risk-neutral value of the potential credit losses on a portfolio of derivatives. Sensitivities-based hedging of such liability is sub-optimal because of bid-ask costs, pricing models…

We consider derivatives written on multiple underlyings in a one-period financial market, and we are interested in the computation of model-free upper and lower bounds for their arbitrage-free prices. We work in a completely realistic…

We propose a pairs trading model that incorporates a time-varying volatility of the Constant Elasticity of Variance type. Our approach is based on stochastic control techniques; given a fixed time horizon and a portfolio of two…

Financial markets have developed a lot of strategies to control risks induced by market fluctuations. Mathematics has emerged as the leading discipline to address fundamental questions in finance as asset pricing model and hedging…

We present a semi-static hedging algorithm for callable interest rate derivatives under an affine, multi-factor term-structure model. With a traditional dynamic hedge, the replication portfolio needs to be updated continuously through time…

In most real scenarios the construction of a risk-neutral portfolio must be performed in discrete time and with transaction costs. Two human imposed constraints are the risk-aversion and the profit maximization, which together define a…

We review recent progress in modeling credit risk for correlated assets. We start from the Merton model which default events and losses are derived from the asset values at maturity. To estimate the time development of the asset values, the…

In this paper, we investigate risk minimization problem of derivatives based on non-tradable underlyings by means of dynamic g-expectations which are slight different from conditional g-expectations. In this framework, inspired by [1] and…