Related papers: Foreign Exchange Markets with Last Look
We consider the problem of maximizing portfolio value when an agent has a subjective view on asset value which differs from the traded market price. The agent's trades will have a price impact which affect the price at which the asset is…
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 article provides a list of counterexamples, where some of the popular fx option interpolations break down. Interpolation of FX option prices (or equivalently volatilities), is key to risk-manage not only vanilla FX option books, but…
We develop a model for indifference pricing in derivatives markets where price quotes have bid-ask spreads and finite quantities. The model quantifies the dependence of the prices and hedging portfolios on an investor's beliefs, risk…
We consider a one-period Kyle (1985) framework where the insider can be subject to a penalty if she trades. We establish existence and uniqueness of equilibrium for virtually any penalty function when noise is uniform. In equilibrium, the…
In online bilateral trade, a platform posts prices to incoming pairs of buyers and sellers that have private valuations for a certain good. If the price is lower than the buyers' valuation and higher than the sellers' valuation, then a…
We investigate quotation and transaction activities in the foreign exchange market for every week during the period of June 2007 to December 2010. A scaling relationship between the mean values of number of quotations (or number of…
We study bilateral trade with a broker, where a buyer and seller interact exclusively through the broker. The broker strategically maximizes her payoff through arbitrage by trading with the buyer and seller at different prices. We study…
We discuss price variations distributions in foreign exchange markets, characterizing them both in calendar and business time frameworks. The price dynamics is found to be the result of two distinct processes, a multi-variance diffusion and…
The foreign exchange market has taken an important role in the global financial market. While foreign exchange trading brings high-yield opportunities to investors, it also brings certain risks. Since the establishment of the foreign…
Bilateral trade models the task of intermediating between two strategic agents, a seller and a buyer, willing to trade a good for which they hold private valuations. We study this problem from the perspective of a broker, in a regret…
A corporate bond trader in a typical sell side institution such as a bank provides liquidity to the market participants by buying/selling securities and maintaining an inventory. Upon receiving a request for a buy/sell price quote (RFQ),…
This paper studies the problem of option replication in general stochastic volatility markets with transaction costs, using a new specification for the volatility adjustment in Leland's algorithm \cite{Leland}. We prove several limit…
We present a general derivation of the arbitrage-free pricing framework for multiple-currency collateralized products. We include the impact on option pricing of the policy adopted to fund in foreign currency, so that we are able to price…
An arbitrage strategy allows a financial agent to make certain profit out of nothing, i.e., out of zero initial investment. This has to be disallowed on economic basis if the market is in equilibrium state, as opportunities for riskless…
An investor with constant absolute risk aversion trades a risky asset with general It\^o-dynamics, in the presence of small proportional transaction costs. In this setting, we formally derive a leading-order optimal trading policy and the…
We consider the hedging problem where a futures position can be automatically liquidated by the exchange without notice. We derive a semi-closed form for an optimal hedging strategy with dual objectives - to minimise both the variance of…
When trading American and Asian options in the FX derivatives market, banks must calculate prices using a complex mathematical model. It is often observed that different models produce varying prices for the same exotic option, which…
It is known that the implied volatility skew of FX options demonstrates a stochastic behavior which is called stochastic skew. In this paper we create stochastic skew by assuming the spot/instantaneous variance correlation to be stochastic.…
We study a novel pricing operator for complete, local martingale models. The new pricing operator guarantees put-call parity to hold for model prices and the value of a forward contract to match the buy-and-hold strategy, even if the…