Related papers: Arbitrage Opportunities in CDS Term Structure: The…
The problem of existence of arbitrage free and monotone CDO term structure models is studied. Conditions for positivity and monotonicity of the corresponding Heath-Jarrow-Morton-Musiela equation for the $x$-forward rates with the use of the…
We derive deterministic criteria for the existence and non-existence of equivalent (local) martingale measures for financial markets driven by multi-dimensional time-inhomogeneous diffusions. Our conditions can be used to construct…
Statistical arbitrage is a class of financial trading strategies using mean reversion models. The corresponding techniques rely on a number of assumptions which may not hold for general non-stationary stochastic processes. This paper…
We develop an arbitrage-free framework for consistent valuation of derivative trades with collateralization, counterparty credit gap risk, and funding costs, following the approach first proposed by Pallavicini and co-authors in 2011. Based…
In credit risk literature, the existence of an equivalent martingale measure is stipulated as one of the main assumptions in the hazard process model. Here we show by construction the existence of a measure that turns the discounted stock…
Combinatorial auctions (CA) are a well-studied area in algorithmic mechanism design. However, contrary to the standard model, empirical studies suggest that a bidder's valuation often does not depend solely on the goods assigned to him. For…
We study the formation of derivative prices in equilibrium between risk-neutral agents with heterogeneous beliefs about the dynamics of the underlying. Under the condition that the derivative cannot be shorted, we prove the existence of a…
Although the valuation of life contingent assets has been thoroughly investigated under the framework of mathematical statistics, little financial economics research pays attention to the pricing of these assets in a non-arbitrage, complete…
In the paper we study markets with concave transaction costs which depend in a concave way on the volume of transaction. This is typical situation in the case of small investors, which commonly appears in currency and real estate markets.…
We study markets with no riskless (safe) asset. We derive the corresponding Black-Scholes-Merton option pricing equations for markets where there are only risky assets which have the following price dynamics: (i) continuous diffusions; (ii)…
We study the loan contracts offered by decentralised loan protocols (DLPs) through the lens of financial derivatives. DLPs, which effectively are clearinghouses, facilitate transactions between option buyers (i.e. borrowers) and option…
As the global economy transitions toward decarbonization, the aluminium sector has become a focal point for strategic resource management. While policies such as the Carbon Border Adjustment Mechanism (CBAM) aim to reduce emissions, they…
We consider a structural default model in an interconnected banking network as in Lipton [International Journal of Theoretical and Applied Finance, 19(6), 2016], with mutual obligations between each pair of banks. We analyse the model…
We revisit the problem of pricing and hedging plain vanilla single-currency interest rate derivatives using multiple distinct yield curves for market coherent estimation of discount factors and forward rates with different underlying rate…
Automatic differentiation is involved for long in applied mathematics as an alternative to finite difference to improve the accuracy of numerical computation of derivatives. Each time a numerical minimization is involved, automatic…
This paper gives an arbitrage-free prediction for future prices of an arbitrary co-terminal set of options with a given maturity, based on the observed time series of these option prices. The statistical analysis of such a multi-dimensional…
In this paper we extend the theory of option pricing to take into account and explain the empirical evidence for asset prices such as non-Gaussian returns, long-range dependence, volatility clustering, non-Gaussian copula dependence, as…
We consider a class of generalized capital asset pricing models in continuous time with a finite number of agents and tradable securities. The securities may not be sufficient to span all sources of uncertainty. If the agents have…
We present a quantitative study of the markets and models evolution across the credit crunch crisis. In particular, we focus on the fixed income market and we analyze the most relevant empirical evidences regarding the divergences between…
We consider derivatives written on multiple underlyings in a one-period financial market, and we are interested in the computation of model-free upper and lower bounds for their arbitrage-free prices. We work in a completely realistic…