Related papers: Optimal FX Hedge Tenor with Liquidity Risk
We consider an investor who wants to hedge a path-dependent option with maturity $T$ using a static hedging portfolio using cash, the underlying, and vanilla put/call options on the same underlying with maturity $ t_1$, where $0 < t_1 < T$.…
Modern Portfolio Theory (MPT) prescribes how to maximise the return of an asset portfolio for a given level of risk. The optimal trade-off between return and variance defines the efficient frontier. Whether actual cryptoasset portfolios…
It is shown that delta hedging provides the optimal trading strategy in terms of minimal required initial capital to replicate a given terminal payoff in a continuous-time Markovian context. This holds true in market models where no…
Purpose: This study introduces a novel framework for identifying and exploiting predictive lead-lag relationships in financial markets. We propose an integrated approach that combines advanced statistical methodologies with machine learning…
Lead-lag relationships among assets represent a useful tool for analyzing high frequency financial data. However, research on these relationships predominantly focuses on correlation analyses for the dynamics of stock prices, spots and…
This paper seeks to forecast intraday volatility curves for major foreign exchange (FX) currencies using functional GARCH models. Intraday return curves are observed at a daily frequency, yet preserve the full high-frequency trading…
We propose a new risk sensitive reinforcement learning approach for the dynamic hedging of options. The approach focuses on the minimization of the tail risk of the final P&L of the seller of an option. Different from most existing…
This paper shows how reinforcement learning can be used to derive optimal hedging strategies for derivatives when there are transaction costs. The paper illustrates the approach by showing the difference between using delta hedging and…
We consider the problem of optimal hedging in an incomplete market with an established pricing kernel. In such a market, prices are uniquely determined, but perfect hedges are usually not available. We work in the rather general setting of…
This paper studies a mean-risk portfolio choice problem for log-returns in a continuous-time, complete market. This is a growth-optimal problem with risk control. The risk of log-returns is measured by weighted Value-at-Risk (WVaR), which…
In this paper, we study an investor's optimal entry and exit decisions in a liquid staking protocol (LSP) and an automated market maker (AMM), primarily from the standpoint of the investor. Our analysis focuses on two key investor actions:…
We build an optimal portfolio liquidation model for OTC markets, aiming at minimizing the trading costs via the choice of the liquidation time. We work in the Locally Linear Order Book framework of \cite{toth2011anomalous} to obtain the…
This paper introduces a methodology for constructing a market index composed of a liquid risky asset and a liquid risk-free asset that achieves a fixed target volatility. Existing volatility-targeting strategies typically scale portfolio…
This paper studies a robust portfolio optimization problem under the multi-factor volatility model introduced by Christoffersen et al. (2009). The optimal strategy is derived analytically under the worst-case scenario with or without…
We consider an investor that trades continuously and wants to liquidate an initial asset position within a prescribed time interval. During the execution of the liquidation order the investor is subject to execution risk. We study the…
We present an algorithm producing a dynamic non-self-financing hedging strategy in an incomplete market corresponding to investor-relevant risk criterion. The optimization is a two stage process that first determines admissible model…
Management of a portfolio that includes an illiquid asset is an important problem of modern mathematical finance. One of the ways to model illiquidity among others is to build an optimization problem and assume that one of the assets in a…
The aim of this paper is to provide a mathematical contribution on the semi-static hedge of timing risk associated to positions in American-style options under a multi-dimensional market model. Barrier options are considered in the paper…
We consider as given a discrete time financial market with a risky asset and options written on that asset and determine both the sub- and super-hedging prices of an American option in the model independent framework of ArXiv:1305.6008. We…
We present a robust Deep Hedging framework for the pricing and hedging of option portfolios that significantly improves training efficiency and model robustness. In particular, we propose a neural model for training model embeddings which…