Related papers: Optimal FX Hedge Tenor with Liquidity Risk
We propose a novel model to achieve superior out-of-sample Sharpe ratios. While most research in asset allocation focuses on estimating the return vector and covariance matrix, the first component of our novel model instead forecasts the…
This paper considers the problem of optimal liquidation of a position in a risky security in a financial market, where price evolution are risky and trades have an impact on price as well as uncertainty in the filling orders. The problem is…
This paper investigates optimal investment and pension policies in a Pay-As-You-Go (PAYG) system supplemented by a buffer fund used as an intergenerational risk-sharing mechanism. The social planner's preference criterion is represented by…
We propose a multi-factor polynomial framework to model and hedge long-term electricity contracts with delivery period. This framework has several advantages: the computation of forwards, risk premium and correlation between different…
We propose a portfolio allocation method based on risk factor budgeting using convex Nonnegative Matrix Factorization (NMF). Unlike classical factor analysis, PCA, or ICA, NMF ensures positive factor loadings to obtain interpretable…
This paper advances the computational efficiency of Deep Hedging frameworks through the novel integration of Kronecker-Factored Approximate Curvature (K-FAC) optimization. While recent literature has established Deep Hedging as a…
The fast-growing Emerging Market (EM) economies and their improved transparency and liquidity have attracted international investors. However, the external price shocks can result in a higher level of volatility as well as domestic policy…
Traders are often faced with large block orders in markets with limited liquidity and varying volatility. Executing the entire order at once usually incurs a large trading cost because of this limited liquidity. In order to minimize this…
We propose a projection method to estimate risk-neutral moments from option prices. We derive a finite-sample bound implying that the projection estimator attains (up to a constant) the smallest pricing error within the span of traded…
This paper studies the problem of optimally allocating a cash injection into a financial system in distress. Given a one-period borrower-lender network in which all debts are due at the same time and have the same seniority, we address the…
This paper studies an optimal investing problem for a retiree facing longevity risk and living standard risk. We formulate the investing problem as a portfolio choice problem under a time-varying risk capacity constraint. We derive the…
Many cryptocurrency brokers nowadays offer a variety of derivative assets that allow traders to perform hedging or speculation. This paper proposes an effective algorithm based on neural networks to take advantage of these investment…
We study cash-flow forecasting for derivatives used in liquidity management and clarify its relation to risk-neutral valuation and replication. While it is well known that expectations under different measures (e.g., $\mathbb{P}$ vs.…
When a loan is approved for a person or company, the bank is subject to \emph{credit risk}; the risk that the lender defaults. To mitigate this risk, a bank will require some form of \emph{security}, which will be collected if the lender…
In this paper, we focus on finding the optimal hedging strategy of a credit index option using reinforcement learning. We take a practical approach, where the focus is on realism i.e. discrete time, transaction costs; even testing our…
This paper develops a new dual approach to compute the hedging portfolio of a Bermudan option and its initial value. It gives a "purely dual" algorithm following the spirit of Rogers (2010) in the sense that it only relies on the dual…
I study intertemporal hedging demand in a continuous-time multi-asset long-run risk (LRR) model under Epstein--Zin (EZ) recursive preferences. The investor trades a risk-free asset and several risky assets whose drifts and volatilities…
We propose a pairs trading model that incorporates a time-varying volatility of the Constant Elasticity of Variance type. Our approach is based on stochastic control techniques; given a fixed time horizon and a portfolio of two…
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…
I explicitly work out closed form solutions for the optimal hedging strategies (in the sense of Bouchaud and Sornette) in the case of European call options, where the underlying is modeled by (unbiased) iid additive returns with Student-t…