Related papers: Foreign Exchange Markets with Last Look
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…
We study the economic viability of liquidity provision in decentralised exchanges (DEXs) within a structural framework in which market outcomes are endogenous. We formulate strategic interactions as a sequential game: a risk-averse…
We study an online fair division problem where a fixed number of goods arrive sequentially and must be allocated to a given set of agents. Once a good arrives, its true value for each agent is revealed, and it has to be immediately and…
This paper aims at solving FX market volatility modeling problem and finding the most becoming approach to this task. Validity of two competing approaches, classical econometric generalized conditional heteroscedasticity and mathematical…
There is a pervasive assumption that low latency access to an exchange is a key factor in the profitability of many high-frequency trading strategies. This belief is evidenced by the "arms race" undertaken by certain financial firms to…
We investigate the relation between the fair price for European-style vanilla options and the distribution of short-term returns on the underlying asset ignoring transaction and other costs. We compute the risk-neutral probability density…
The value of an asset in a financial market is given in terms of another asset known as numeraire. The dynamics of the value is non-stationary and hence, to quantify the relationships between different assets, one requires convenient…
We investigate brokerage between traders from an online learning perspective. At any round $t$, two traders arrive with their private valuations, and the broker proposes a trading price. Unlike other bilateral trade problems already studied…
For an investor with constant absolute risk aversion and a long horizon, who trades in a market with constant investment opportunities and small proportional transaction costs, we obtain explicitly the optimal investment policy, its implied…
This paper proposes a numerical method for pricing foreign exchange (FX) options in a model which deals with stochastic interest rates and stochastic volatility of the FX rate. The model considers four stochastic drivers, each represented…
In many search markets, advance interim contracts include an explicit right to renege, granting one party the option to switch to more attractive matches that emerge later in the search process. This paper studies the design and welfare…
The purpose of this paper is introducing rigorous methods and formulas for bilateral counterparty risk credit valuation adjustments (CVA's) on interest-rate portfolios. In doing so, we summarize the general arbitrage-free valuation…
We are interested in the existence of equivalent martingale measures and the detection of arbitrage opportunities in markets where several multi-asset derivatives are traded simultaneously. More specifically, we consider a financial market…
Previous literature shows that prevalent risk measures such as Value at Risk or Expected Shortfall are ineffective to curb excessive risk-taking by a tail-risk-seeking trader with S-shaped utility function in the context of portfolio…
Bilateral bargaining under incomplete information provides a controlled testbed for evaluating large language model (LLM) agent capabilities. Bilateral trade demands individual rationality, strategic surplus maximization, and cooperation to…
This paper develops a framework to predict toxic trades that a broker receives from her clients. Toxic trades are predicted with a novel online learning Bayesian method which we call the projection-based unification of last-layer and…
Decentralized exchanges are widely used platforms for trading crypto assets. The most common types work with automated market makers (AMM), allowing traders to exchange assets without needing to find matching counterparties. Thereby,…
Interaction strategies for reward in competitive environments are significantly influenced by the nature and extent of available information. In financial markets, particularly foreign exchange (forex), traders operate independently with…
This paper examines foreign exchange risk premia from simple univariate regressions to the state-space method. The adjusted traditional regressions properly figure out the existence and time-evolving property of the risk premia.…
The collateral choice option gives the collateral posting party the opportunity to switch between different collateral currencies which is well-known to impact the asset price. Quantification of the option's value is of practical importance…