Related papers: Executive stock option exercise with full and part…
Employee stock options (ESOs) are American-style call options that can be terminated early due to employment shock. This paper studies an ESO valuation framework that accounts for job termination risk and jumps in the company stock price.…
We consider the problem of ESO valuation in continuous time. In particular, we consider models that assume that an appropriate random time serves as a proxy for anything that causes the ESO's holder to exercise the option early, namely,…
We propose a new framework to value employee stock options (ESOs) that captures multiple exercises of different quantities over time. We also model the ESO holder's job termination risk and incorporate its impact on the payoffs of both…
In this paper we formulate and study an optimal switching problem under partial information. In our model the agent/manager/investor attempts to maximize the expected reward by switching between different states/investments. However, he is…
We solve a version of the optimal trade execution problem when the mid asset price follows a displaced diffusion. Optimal strategies in the adapted class under various risk criteria, namely value-at-risk, expected shortfall and a new…
Even in the face of deteriorating and highly volatile demand, firms often invest in, rather than discard, aging technologies. In order to study this phenomenon, we model the firm's profit stream as a Brownian motion with negative drift. At…
The first half of the paper is devoted to description and implementation of statistical tests arguing for the presence of a Brownian component in the inventories and wealth processes of individual traders. We use intra-day data from the…
Optimal execution in financial markets refers to the process of strategically transacting a large volume of assets over a period to achieve the best possible outcome by balancing the trade-off between market impact costs and timing or…
In this paper we study an incomplete information optimal switching problem in which the manager only has access to noisy observations of the underlying Brownian motion $\{W_t\}_{t \geq 0}$. The manager can, at a fixed cost, switch between…
Using a fast numerical technique, we investigate a large database of investor suboptimal non-exercise of short maturity American call options on dividend-paying stocks listed on the Dow Jones. The correct modelling of the discrete dividend…
Mathematically, the execution of an American-style financial derivative is commonly reduced to solving an optimal stopping problem. Breaking the general assumption that the knowledge of the holder is restricted to the price history of the…
This paper presents a framework of imitating the principal investor's behavior for optimal pricing and hedging options. We construct a non-deterministic Markov decision process for modeling stock price change driven by the principal…
While absence of arbitrage in frictionless financial markets requires price processes to be semimartingales, non-semimartingales can be used to model prices in an arbitrage-free way, if proportional transaction costs are taken into account.…
This paper investigates optimal portfolio strategies in a financial market where the drift of the stock returns is driven by an unobserved Gaussian mean reverting process. Information on this process is obtained from observing stock returns…
We consider an economic agent (a household or an insurance company) modelling its surplus process by a deterministic process or by a Brownian motion with drift. The goal is to maximise the expected discounted spendings/dividend payments,…
This paper develops a unified explicit solution theory for optimal execution through sequential limit-order placement in a limit order book. Rather than controlling only the trading speed of a metaorder, we determine how individual limit…
This paper aims at designing the different important components of a semi-closed simulated stock market (pricing mechanism, stock allocation and news generation). The purpose is to understand the interactions of the different aspects within…
We study the problem of selling information to a data-buyer who faces a decision problem under uncertainty. We consider the classic Bayesian decision-theoretic model pioneered by [Blackwell, 1951, 1953]. Initially, the data buyer has only…
Starting from the Avellaneda-Stoikov framework, we consider a market maker who wants to optimally set bid/ask quotes over a finite time horizon, to maximize her expected utility. The intensities of the orders she receives depend not only on…
This paper studies an optimal trading problem that incorporates the trader's market view on the terminal asset price distribution and uninformative noise embedded in the asset price dynamics. We model the underlying asset price evolution by…