Related papers: Behavioural effects on XVA
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…
We extend the valuation of contingent claims in presence of default, collateral and funding to a random functional setting and characterise pre-default value processes by martingales. Pre-default value semimartingales can also be described…
Options are contingent claims regarding the value of underlying assets. The Black-Scholes formula provides a road map for pricing these options in a risk-neutral setting, justified by a delta hedging argument in which countervailing…
In this work I clarify VAT evasion incentives through a game theoretical approach. Traditionally, evasion has been linked to the decreasing risk aversion in higher revenues (Allingham and Sandmo (1972), Cowell (1985) (1990)). I claim tax…
We study how loyalty behavior of customers and differing costs to produce undifferentiated products by firms can influence market outcomes. In prior works that study such markets, firm costs have generally been assumed negligible or equal,…
We consider the fundamental theorem of asset pricing (FTAP) and hedging prices of options under non-dominated model uncertainty and portfolio constrains in discrete time. We first show that no arbitrage holds if and only if there exists…
A new challenge to quantitative finance after the recent financial crisis is the study of credit valuation adjustment (CVA), which requires modeling of the future values of a portfolio. In this paper, following recent work in [Weinan…
We consider the Independent Chip Model (ICM) for expected value in poker tournaments. Our first result is that participating in a fair bet with one other player will always lower one's expected value under this model. Our second result is…
Although climate and nature related scenario analysis is increasingly important in finance, operational implementations remain limited for translating long horizon environmental scenarios into counterparty credit risk measures used in…
We investigate whether the fee income from trades on the CFM is sufficient for the liquidity providers to hedge away the exposure to market risk. We first analyse this problem through the lens of continuous-time financial mathematics and…
Many empirical studies estimate causal effects in environments where economic units interact through spatial or network connections. In such settings, outcomes are jointly determined, and treatment induced shocks propagate across…
The coupled nonlinear volatility and option pricing model presented recently by Ivancevic is investigated, which generates a leverage effect, i.e., stock volatility is (negatively) correlated to stock returns, and can be regarded as a…
We study the effect of different persona on \textbf{sycophancy}: model's agreement with users even when the user is incorrect. The standard mitigation, Contrastive Activation Addition (CAA), derives a steering direction from labelled pairs…
Human verification under adversarial information flow operates as a cost-bounded decision procedure constrained by working memory limits and cognitive biases. We introduce the Verification Cost Asymmetry (VCA) coefficient, formalizing it as…
We develop robust pricing and hedging of a weighted variance swap when market prices for a finite number of co--maturing put options are given. We assume the given prices do not admit arbitrage and deduce no-arbitrage bounds on the weighted…
We consider the computation by simulation and neural net regression of conditional expectations, or more general elicitable statistics, of functionals of processes $(X, Y )$. Here an exogenous component $Y$ (Markov by itself) is…
We derive the price of a spread option based on two assets which follow a bivariate volatility modulated Volterra process dynamics. Such a price dynamics is particularly relevant in energy markets, modelling for example the spot price of…
We show how to restructure the counterparty risk faced by the originator of a securitization or covered bond arising from an interest rate hedging swap assisted by a "one-way" collateral agreement. This risk emerges when the swap is…
The aim of this paper is to quantify and manage systemic risk caused by default contagion in the interbank market. We model the market as a random directed network, where the vertices represent financial institutions and the weighted edges…
Interbank contagion can theoretically exacerbate losses in a financial system and lead to additional cascade defaults during downturn. In this paper we produce default analysis using both regression and neural network models to verify…