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We consider a stochastic volatility model where the dynamics of the volatility are given by a possibly infinite linear combination of the elements of the time extended signature of a Brownian motion. First, we show that the model is…
In this paper, we use replica analysis to investigate the influence of correlation among the return rates of assets on the solution of the portfolio optimization problem. We consider the behavior of the optimal solution for the case where…
We present a numerically efficient approach for learning a risk-neutral measure for paths of simulated spot and option prices up to a finite horizon under convex transaction costs and convex trading constraints. This approach can then be…
Paper is based on "The cost of illiquidity and its effects on hedging", L. C. G. Rogers and Surbjeet Singh, 2010. We generalize its thesis to constant elasticity model, which own previously used Black-Schoels model as a special case. The…
We present a reactive beta model that includes the leverage effect to allow hedge fund managers to target a near-zero beta for market neutral strategies. For this purpose, we derive a metric of correlation with leverage effect to identify…
The question of pricing and hedging a given contingent claim has a unique solution in a complete market framework. When some incompleteness is introduced, the problem becomes however more difficult. Several approaches have been adopted in…
Current approaches to fair valuation in insurance often follow a two-step approach, combining quadratic hedging with application of a risk measure on the residual liability, to obtain a cost-of-capital margin. In such approaches, the…
We present a framework for hedging a portfolio of derivatives in the presence of market frictions such as transaction costs, market impact, liquidity constraints or risk limits using modern deep reinforcement machine learning methods. We…
In the present work, the optimal portfolio minimizing the investment risk with cost is discussed analytically, where this objective function is constructed in terms of two negative aspects of investment, the risk and cost. We note the…
A positive correlation between exposure and counterparty credit risk gives rise to the so-called Wrong-Way Risk (WWR). Even after a decade of the financial crisis, addressing WWR in both sound and tractable ways remains challenging.…
In this paper we study the pricing and hedging of nonreplicable contingent claims, such as long-term insurance contracts like variable annuities. Our approach is based on the benchmark-neutral pricing framework of Platen (2024), which…
This paper proposes the option-implied Fourier-cosine method, iCOS, for non-parametric estimation of risk-neutral densities, option prices, and option sensitivities. The iCOS method leverages the Fourier-based COS technique, proposed by…
Growth-optimal portfolios are guaranteed to accumulate higher wealth than any other investment strategy in the long run. However, they tend to be risky in the short term. For serially uncorrelated markets, similar portfolios with more…
We consider insurance derivatives depending on an external physical risk process, for example a temperature in a low dimensional climate model. We assume that this process is correlated with a tradable financial asset. We derive optimal…
Numerous empirical proofs indicate the adequacy of the time discrete auto-regressive stochastic volatility models introduced by Taylor in the description of the log-returns of financial assets. The pricing and hedging of contingent products…
This paper presents hedging strategies for European and exotic options in a Levy market. By applying Taylor's Theorem, dynamic hedging portfolios are con- structed under different market assumptions, such as the existence of power jump…
We model the impact costs of a strategy that trades a basket of correlated instruments, by extending to the multivariate case the linear propagator model previously used for single instruments. Our specification allows us to calibrate a…
We analyze the theory of optimal investment in risky assets, developed recently by Marsili, Maslov and Zhang [Physica A 253 (1998) 403]. When the real data are used instead of abstract stochastic process, it appears that a non-trivial…
A cryptocurrency is a digital asset maintained by a decentralised system using cryptography. Investors in this emerging digital market are exploring the profitability potential of portfolios in place of single coins. Portfolios are…
Database fingerprinting have been widely adopted to prevent unauthorized sharing of data and identify the source of data leakages. Although existing schemes are robust against common attacks, like random bit flipping and subset attack,…