Related papers: Foreign Exchange Markets with Last Look
We present a Hawkes model approach to foreign exchange market in which the high frequency price dynamics is affected by a self exciting mechanism and an exogenous component, generated by the pre-announced arrival of macroeconomic news. By…
When quoting across multiple contracts, the sequence of execution can be a key driver of implementation shortfall relative to the target spread~\cite{bergault2022multi}. We model the short-horizon execution risk from such quoting as…
A counterparty credit limit (CCL) is a limit that is imposed by a financial institution to cap its maximum possible exposure to a specified counterparty. CCLs help institutions to mitigate counterparty credit risk via selective…
A variance swap is a derivative with a path-dependent payoff which allows investors to take positions on the future variability of an asset. In the idealised setting of a continuously monitored variance swap written on an asset with…
Foreign exchange rates movements exhibit significant cross-correlations even on very short time-scales. The effect of these statistical relationships become evident during extreme market events, such as flash crashes.In this scenario, an…
This paper addresses the trade-off between internalisation and externalisation in the management of stochastic trade flows. We consider agents who must absorb flows and manage risk by deciding whether to warehouse it or hedge in the market,…
We study the upper and lower bounds for prices of European and American style options with the possibility of an external termination, meaning that the contract may be terminated at some random time. Under the assumption that the underlying…
Passive liquidity providers (LPs) in automated market makers (AMMs) face losses due to adverse selection (LVR), which static trading fees often fail to offset in practice. We study the key determinants of LP profitability in a dynamic…
Most models for barrier pricing are designed to let a market maker tune the model-implied covariance between moves in the asset spot price and moves in the implied volatility skew. This is often implemented with a local…
We suggest that one individual holds multiple degrees of belief about an outcome, given the evidence. We then investigate the implications of such noisy probabilities for a buyer and a seller of binary options and find the odds agreed upon…
In this paper we study the pricing of exchange options when underlying assets have stochastic volatility and stochastic correlation. An approximation using a closed-form approximation based on a Taylor expansion of the conditional price is…
New services based on the best-effort paradigm could complement the current deterministic services of an electronic financial exchange. Four crucial aspects of such systems would benefit from a hybrid stance: proper use of processing…
We consider a market model that consists of financial investors and producers of a commodity. Producers optionally store some production for future sale and go short on forward contracts to hedge the uncertainty of the future commodity…
We consider portfolio selection under nonparametric $\alpha$-maxmin ambiguity in the neighbourhood of a reference distribution. We show strict concavity of the portfolio problem under ambiguity aversion. Implied demand functions are…
Put-call parity is risk-neutral at terminal payoff, but its enforcement is path-dependent and capital-using. I test whether the SPX and RUT carry gap is explained by OIS-based funding, volatility, trading-friction, and financial-condition…
We study the problem of option pricing and hedging strategies within the frame-work of risk-return arguments. An economic agent is described by a utility function that depends on profit (an expected value) and risk (a variance). In the…
The intermarket analysis, in particular the lead-lag relationship, plays an important role within financial markets. Therefore a mathematical approach to be able to find interrelations between the price development of two different…
We consider a financial market in which traders potentially face restrictions in trading some of the available securities. Traders are heterogeneous with respect to their beliefs and risk profiles, and the market is assumed thin: traders…
We introduce the general arbitrage-free valuation framework for counterparty risk adjustments in presence of bilateral default risk, including default of the investor. We illustrate the symmetry in the valuation and show that the adjustment…
In this paper the fractional trading ansatz of money management is reconsidered with special attention to chance and risk parts in the goal function of the related optimization problem. By changing the goal function with due regards to…