Related papers: Perfect hedging under endogenous permanent market …
We study the problem of the execution of a moderate size order in an illiquid market within the framework of a solvable Markovian model. We suppose that in order to avoid impact costs, a trader decides to execute her order through a unique…
We use a continuous version of the standard deviation premium principle for pricing in incomplete equity markets by assuming that the investor issuing an unhedgeable derivative security requires compensation for this risk in the form of a…
We consider an optimal liquidation problem with instantaneous price impact and stochastic resilience for small instantaneous impact factors. Within our modelling framework, the optimal portfolio process converges to the solution of an…
We develop a framework for stochastic portfolio theory (SPT), which incorporates modern nonlinear price impact and impact decay models. Our main result is the derivation of the celebrated master formula for additive functional generation of…
Rough volatility models are known to reproduce the behavior of historical volatility data while at the same time fitting the volatility surface remarkably well, with very few parameters. However, managing the risks of derivatives under…
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…
This study investigates the prevention of market manipulation using a price-impact model of financial market trading as a linear system. First, I define a trading game between speculators such that they implement a manipulation trading…
We study an optimal execution problem in the infinite horizon setup. Our financial market is given by the Black-Scholes model with a linear price impact. The main novelty of the current note is that we study the constrained case where the…
In this paper, we prove the global risk optimality of the hedging strategy of contingent claim, which is explicitly (or called semi-explicitly) constructed for an incomplete financial market with external risk factors of non-Gaussian…
Proof that under simple assumptions, such as constraints of Put-Call Parity, the probability measure for the valuation of a European option has the mean derived from the forward price which can, but does not have to be the risk-neutral one,…
The cryptocurrency market is volatile, non-stationary and non-continuous. Together with liquid derivatives markets, this poses a unique opportunity to study risk management, especially the hedging of options, in a turbulent market. We study…
This paper investigates the optimal choices of financial derivatives to complete a financial market in the framework of stochastic volatility (SV) models. We introduce an efficient and accurate simulation-based method, applicable to…
We consider the problem of hedging a European contingent claim in a Bachelier model with transient price impact as proposed by Almgren and Chriss. Following the approach of Rogers and Singh and Naujokat and Westray, the hedging problem can…
We adress the maximization problem of expected utility from terminal wealth. The special feature of this paper is that we consider a financial market where the price process of risky assets can have a default time. Using dynamic…
Stochastic differential equation (SDE) models are the foundation for pricing and hedging financial derivatives. The drift and volatility functions in SDE models are typically chosen to be algebraic functions with a small number (less than…
We study contingent claims in a discrete-time market model where trading costs are given by convex functions and portfolios are constrained by convex sets. In addition to classical frictionless markets and markets with transaction costs or…
In a market with a rough or Markovian mean-reverting stochastic volatility there is no perfect hedge. Here it is shown how various delta-type hedging strategies perform and can be evaluated in such markets in the case of European options. A…
There are two schools of thought regarding market impact modeling. On the one hand, seminal papers by Almgren and Chriss introduced a decomposition between a permanent market impact and a temporary (or instantaneous) market impact. This…
This paper investigates the investment behaviour of a large unregulated financial institution (FI) with CARA risk preferences. It shows how the FI optimizes its trading to account for market illiquidity using an extension of the…
We propose a stochastic game modelling the strategic interaction between market makers and traders of optimal execution type. For traders, the permanent price impact commonly attributed to them is replaced by quoting strategies implemented…