Related papers: Scaling Limits for Super--replication with Transie…
We study super--replication of European contingent claims in an illiquid market with insider information. Illiquidity is captured by quadratic transaction costs and insider information is modeled by an investor who can peek into the future.…
We consider plain vanilla European options written on an underlying asset that follows a continuous time semi-Markov multiplicative process. We derive a formula and a renewal type equation for the martingale option price. In the case in…
Given a finite set of European call option prices on a single underlying, we want to know when there is a market model which is consistent with these prices. In contrast to previous studies, we allow models where the underlying trades at a…
Assuming that price of the underlying stock is moving in range bound, the Black-Scholes formula for options pricing supports a separation of variables. The resulting time-independent equation is solved employing different behavior of the…
Since Hobson's seminal paper [D. Hobson: Robust hedging of the lookback option. In: Finance Stoch. (1998)] the connection between model-independent pricing and the Skorokhod embedding problem has been a driving force in robust finance. We…
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…
We propose a formulation to construct new classes of financial price processes based on the insight that the key variable driving prices $P$ is the earning-over-price ratio $\gamma \simeq 1/P$, which we refer to as the earning yield and is…
In this paper, we consider scaling limits of exponential utility indifference prices for European contingent claims in the Bachelier model. We show that the scaling limit can be represented in terms of the \emph{specific relative entropy},…
We investigate the effect that the choice of measurement scale has upon inference and extrapolation in extreme value analysis. Separate analyses of variables from a single process on scales which are linked by a nonlinear transformation may…
Using spectral decomposition techniques and singular perturbation theory, we develop a systematic method to approximate the prices of a variety of options in a fast mean-reverting stochastic volatility setting. Four examples are provided in…
We study the problem of resource provisioning under stringent reliability or service level requirements, which arise in applications such as power distribution, emergency response, cloud server provisioning, and regulatory risk management.…
We consider the Bachelier model with information delay where investment decisions can be based only on observations from $H>0$ time units before. Utility indifference prices are studied for vanilla options and we compute their non-trivial…
We extend the viscosity solution characterization proved in [5] for call/put American option prices to the case of a general payoff function in a multi-dimensional setting: the price satisfies a semilinear re-action/diffusion type equation.…
Continuous time financial market models are often motivated as scaling limits of discrete time models. The objective of this paper is to establish such a connection for a robust framework. More specifically, we consider discrete time models…
We consider a model of linear market impact, and address the problem of replicating a contingent claim in this framework. We derive a non-linear Black-Scholes Equation that provides an exact replication strategy. This equation is fully…
We propose a constructive framework for the super-hedging problem of a European contingent claim under proportional transaction costs in discrete time. Our main contribution is an explicit recursive scheme that computes both the…
We study the problem of option replication under constant proportional transaction costs in models where stochastic volatility and jumps are combined to capture the market's important features. Assuming some mild condition on the jump size…
We explicitly compute the limiting transient distribution of the search-cost in the move-to-front Markov chain when the number of objects tends to infinity, for general families of deterministic or random request rates. Our techniques are…
In this paper, we investigate the relation between Bachelier and Black-Scholes models driven by the infinitely divisible inverse subordinators. Such models, in contrast to their classical equivalents, can be used in markets where periods of…
The crossing probability in the time direction is defined for an off-equilibrium reaction-diffusion system as the probability that the system of size L is still active at time t, in the finite-size scaling limit. Exact results are obtained…