Related papers: Options on CPPI with guaranteed minimum equity exp…
We develop a new analysis for portfolio optimisation with options, tackling the three fundamental issues with this problem: asymmetric options' distributions, high dimensionality and dependence structure. To do so, we propose a new…
Risk aversion plays a significant and central role in investors' decisions in the process of developing a portfolio. In this framework of portfolio optimization we determine the portfolio that possesses the minimal risk by using a new…
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…
In this work, we introduce Modern Portfolio Theory using basic concepts from linear algebra, differential calculus, statistics, and optimization. This theory allows us to measure the return and risk of an investment portfolio, serving as a…
Proof that under simple assumptions, such as constraints of Put-Call Parity, the probability measure for the valuation of a European option has the mean derived from the forward price which can, but does not have to be the risk-neutral one,…
We consider the infinite-horizon discounted optimal control problem formalized by Markov Decision Processes. We focus on several approximate variations of the Policy Iteration algorithm: Approximate Policy Iteration, Conservative Policy…
Risk diversification is one of the dominant concerns for portfolio managers. Various portfolio constructions have been proposed to minimize the risk of the portfolio under some constrains including expected returns. We propose a portfolio…
This study examines portfolio selection using predictive models for portfolio returns. Portfolio selection is a fundamental task in finance, and a variety of methods have been developed to achieve this goal. For instance, the mean-variance…
This paper explores the effectiveness of high-frequency options trading strategies enhanced by advanced portfolio optimization techniques, investigating their ability to consistently generate positive returns compared to traditional long or…
The option is a financial derivative, which is regularly employed in reducing the risk of its underlying securities. However, investing in option is still risky. Such risk becomes much severer for speculators who utilize option as a means…
The chance constrained optimal power flow (CC-OPF) essentially finds the low-cost generation dispatch scheme ensuring operational constraints are met with a specified probability, termed the security level. While the security level is a…
This paper proposes a hybrid credit risk model, in closed form, to price vulnerable options with stochastic volatility. The distinctive features of the model are threefold. First, both the underlying and the option issuer's assets follow…
We consider the pricing of derivatives written on the discretely sampled realized variance of an underlying security. In the literature, the realized variance is usually approximated by its continuous-time limit, the quadratic variation of…
Employing probabilistic techniques we compute best possible upper and lower bounds on the price of an option on one or two assets with continuous piecewise linear payoff function based on prices of simple call options of possibly distinct…
Conformal prediction provides rigorous distribution-free finite-sample guarantees for marginal coverage under the assumption of exchangeability, but may exhibit systematic undercoverage or overcoverage for specific subpopulations. Assessing…
We propose a new `hedged' Monte-Carlo (HMC) method to price financial derivatives, which allows to determine simultaneously the optimal hedge. The inclusion of the optimal hedging strategy allows one to reduce the financial risk associated…
We reconsider the problem of option pricing using historical probability distributions. We first discuss how the risk-minimisation scheme proposed recently is an adequate starting point under the realistic assumption that price increments…
This paper studies the equity holders' mean-variance optimal portfolio choice problem for (non-)protected participating life insurance contracts. We derive explicit formulas for the optimal terminal wealth and the optimal strategy in the…
Financial options are fundamental to traditional markets, enabling strategies ranging from hedging to speculating. Yet, while the Automated Market Maker paradigm has revolutionized decentralized spot markets, no equivalent standard has…
We introduce a new method to calculate the credit exposure of Bermudan, discretely monitored barrier and European options. Core of the approach is the application of the dynamic Chebyshev method of Glau et al. (2019). The dynamic Chebyshev…