Related papers: The Value of Timing Risk
Safe navigation in real-time is challenging because engineers need to work with uncertain vehicle dynamics, variable external disturbances, and imperfect controllers. A common safety strategy is to inflate obstacles by hand-defined margins.…
We propose a projection method to estimate risk-neutral moments from option prices. We derive a finite-sample bound implying that the projection estimator attains (up to a constant) the smallest pricing error within the span of traded…
Semi-analytical pricing of American options in a time-dependent Ornstein-Uhlenbeck model was presented in [Carr, Itkin, 2020]. It was shown that to obtain these prices one needs to solve (numerically) a nonlinear Volterra integral equation…
The classical discrete time model of proportional transaction costs relies on the assumption that a feasible portfolio process has solvent increments at each step. We extend this setting in two directions, allowing for convex transaction…
We study the numerical algorithm and error analysis for the Cahn-Hilliard equation with dynamic boundary conditions. A second-order in time, linear and energy stable scheme is proposed, which is an extension of the first-order stabilized…
In this paper, we introduce two novel methods to solve the American-style option pricing problem and its dual form at the same time using neural networks. Without applying nested Monte Carlo, the first method uses a series of neural…
We develop a theory for option pricing with perfect hedging in an inefficient market model where the underlying price variations are autocorrelated over a time tau. This is accomplished by assuming that the underlying noise in the system is…
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…
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…
The paper considers an investment timing problem appearing in real options theory. Present values from an investment project are modeled by general diffusion process. We prove necessary and sufficient conditions under which an optimal…
In this paper we present an algorithm for pricing barrier options in one-dimensional Markov models. The approach rests on the construction of an approximating continuous-time Markov chain that closely follows the dynamics of the given…
We consider a general path-dependent version of the hedging problem with price impact of Bouchard et al. (2019), in which a dual formulation for the super-hedging price is obtained by means of PDE arguments, in a Markovian setting and under…
The dynamic hedging theory only makes sense in the setup of one given model, whereas the practice of dynamic hedging is just the opposite, with models fleeing after the data through daily recalibration. This is quite of a quantitative…
This paper is dedicated to the construction of high-order (in both space and time) finite-difference schemes for both forward and backward PDEs and PIDEs, such that option prices obtained by solving both the forward and backward equations…
Market timing is an investment technique that tries to continuously switch investment into assets forecast to have better returns. What is the likelihood of having a successful market timing strategy? With an emphasis on modeling…
We propose a new `hedged' Monte-Carlo (HMC) method to price financial derivatives, which allows to determine simultaneously the optimal hedge. The inclusion of the optimal hedging strategy allows one to reduce the financial risk associated…
We consider the problem of scheduling in multi-class, parallel-server queuing systems with uncertain rewards from job-server assignments. In this scenario, jobs incur holding costs while awaiting completion, and job-server assignments yield…
We consider a financial market in discrete time and study pricing and hedging conditional on the information available up to an arbitrary point in time. In this conditional framework, we determine the structure of arbitrage-free prices.…
Telephone call centers offer a convenient communication channel between businesses and their customers. Efficient management of call centers needs accurate modeling of customer waiting behavior, which contains important information about…
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…