Related papers: Behavioural effects on XVA
We demonstrate that minority mechanisms arise in the dynamics of markets because of effects of price impact; accordingly the relative importance of minority and delayed majority mechanisms depends on the frequency of trading. We then use…
American options are studied in a general discrete market in the presence of proportional transaction costs, modelled as bid-ask spreads. Pricing algorithms and constructions of hedging strategies, stopping times and martingale…
We study the hedging and valuation of European and American claims on a non-traded asset $Y$, when a traded stock $S$ is available for hedging, with $S$ and $Y$ following correlated geometric Brownian motions. This is an incomplete market,…
We propose an empirical method to analyze data from first-price procurements where bidders are asymmetric in their risk-aversion (CRRA) coefficients and distributions of private costs. Our Bayesian approach evaluates the likelihood by…
We apply the concepts of utility based pricing and hedging of derivatives in stochastic volatility markets and introduce a new class of "reciprocal affine" models for which the indifference price and optimal hedge portfolio for pure…
A risk-averse agent hedges her exposure to a non-tradable risk factor $U$ using a correlated traded asset $S$ and accounts for the impact of her trades on both factors. The effect of the agent's trades on $U$ is referred to as cross-impact.…
This paper examines the impact of agents' myopic optimization on the efficiency of systems comprised by many selfish agents. In contrast to standard congestion games where agents interact in a one-shot fashion, in our model each agent…
As operators acting on the undetermined final settlement of a derivative security, expectation is linear but price is non-linear. When the market of underlying securities is incomplete, non-linearity emerges from the bid-offer around the…
We analyze the relative price change of assets starting from basic supply/demand considerations subject to arbitrary motivations. The resulting stochastic differential equation has coefficients that are functions of supply and demand. We…
We consider a portfolio with call option and the corresponding underlying asset under the standard assumption that stock-market price represents a random variable with lognormal distribution. Minimizing the variance (hedging risk) of the…
Convex duality for two two different super--replication problems in a continuous time financial market with proportional transaction cost is proved. In this market, static hedging in a finite number of options, in addition to usual dynamic…
A standard result from auction theory is that bidding truthfully in a second price auction is a weakly dominant strategy. The result, however, does not apply in the presence of Cost Per Action (CPA) constraints. Such constraints exist, for…
We develop a model for pricing, lead-time quotation and delay compensation in a Markovian make-to-order production or service system with strategic customers who exhibit risk aversion. Based on a concave utility function of their net…
The continuous observation of the financial markets has identified some stylized facts which challenge the conventional assumptions, promoting the born of new approaches. On the one hand, the long-range dependence has been faced replacing…
We present a formulation of the transaction cost analysis (TCA) in the Bayesian framework for the primary purpose of comparing broker algorithms using standardized benchmarks. Our formulation allows effective calculation of the expected…
Cash collateral is perfect in that it provides simultaneous counterparty credit risk protection and derivatives funding. Securities are imperfect collateral, because of collateral segregation or differences in CSA haircuts and repo…
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…
The utility of Potential Future Exposure (PFE) for counterparty trading limits is being challenged by new market developments, notably widespread regulatory Initial Margin (using 99% 10-day exposure), and netting of trade and collateral…
The possibility that price dynamics is affected by its distance from a moving average has been recently introduced as new statistical tool. The purpose is to identify the tendency of the price dynamics to be attractive or repulsive with…
The pricing and hedging of a general class of options (including American, Bermudan and European options) on multiple assets are studied in the context of currency markets where trading is subject to proportional transaction costs, and…