Related papers: Market Delay and G-expectations
We study the pricing and hedging of European spread options on correlated assets when, in contrast to the standard framework and consistent with imperfect liquidity markets, the trading in the stock market has a direct impact on stocks…
The author presents alternatives to the Black-Scholes european call option pricing model by incorporating different transaction cost structures in the replicating strategy. In particular, an exponentially decreasing structure is proposed…
We consider a financial market in which two securities are traded: a stock and an index. Their prices are assumed to satisfy the Black-Scholes model. Besides assuming that the index is a tradable security, we also assume that it is…
An option market maker incurs funding costs when carrying and hedging inventory. To hedge a net long delta inventory, for example, she pays a fee to borrow stock from the securities lending market. Because of haircuts, she posts additional…
We introduce a new class of combinatorial markets in which agents have covering constraints over resources required and are interested in delay minimization. Our market model is applicable to several settings including scheduling, cloud…
In this paper, we consider the discrete-time setting, and the market model described by (S,F,T)$. Herein F is the ``public" flow of information which is available to all agents overtime, S is the discounted price process of d-tradable…
We propose a pseudo-market solution to resource allocation problems subject to constraints. Our treatment of constraints is general: including bihierarchical constraints due to considerations of diversity in school choice, or scheduling in…
We consider the pricing of derivatives in a setting with trading restrictions, but without any probabilistic assumptions on the underlying model, in discrete and continuous time. In particular, we assume that European put or call options…
We reconsider the problem of option pricing using historical probability distributions. We first discuss how the risk-minimisation scheme proposed recently is an adequate starting point under the realistic assumption that price increments…
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…
This paper presents a discrete-time option pricing model that is rooted in Reinforcement Learning (RL), and more specifically in the famous Q-Learning method of RL. We construct a risk-adjusted Markov Decision Process for a discrete-time…
In a seminal paper in 1973, Black and Scholes argued how expected distributions of stock prices can be used to price options. Their model assumed a directed random motion for the returns and consequently a lognormal distribution of asset…
We study the upper hedging price for contingent claims in market models with strong types of arbitrage: increasing profit, strong arbitrage, and arbitrage of the first kind. The existence of arbitrage may make the price smaller than if it…
This paper formulates an utility indifference pricing model for investors trading in a discrete time financial market under non-dominated model uncertainty. The investors preferences are described by strictly increasing concave random…
The usual theory of asset pricing in finance assumes that the financial strategies, i.e. the quantity of risky assets to invest, are real-valued so that they are not integer-valued in general, see the Black and Scholes model for instance.…
In this paper we study dynamic pricing mechanism of contingent claims. A typical model of such pricing mechanism is the so-called g-expectation $E^g_{s,t}[X]$ defined by the solution of the backward stochastic differential equation with…
We consider infinite dimensional optimization problems motivated by the financial model called Arbitrage Pricing Theory. Using probabilistic and functional analytic tools, we provide a dual characterization of the super-replication cost.…
We consider the Bachelier model with information delay where investment decisions can be based only on observations from $H>0$ time units before. Utility indifference prices are studied for vanilla options and we compute their non-trivial…
In this paper, we obtain the existence, uniqueness and positivity of the solution to delayed stochastic differential equations with jumps. This equation is then applied to model the price movement of the risky asset in a financial market…
The price of a stock will rarely follow the assumed model and a curious investor or a Regulatory Authority may wish to obtain a probability model the prices support. A risk neutral probability ${\cal P}^*$ for the stock's price at time $T$…