Related papers: Optimal forward contract design for inventory: a v…
Pricing financial derivatives, in particular European-style options at different time-maturities and strikes, means a relevant problem in finance. The dynamics describing the price of vanilla options when constant volatilities and interest…
This paper studies the problem of optimal flow control in dynamic inventory systems. A dynamic optimal distribution problem, including time-varying supply and demand, capacity constraints on the transportation lines, and convex flow cost…
The first half of the paper is devoted to description and implementation of statistical tests arguing for the presence of a Brownian component in the inventories and wealth processes of individual traders. We use intra-day data from the…
Inventory management is a fundamental challenge in supply chain management. The challenge is compounded when the associated products have unpredictable demands. This study proposes an innovative optimization approach combining…
The main objective of this paper is to develop a martingale-type solution to optimal consumption--investment choice problems ([Merton, 1969] and [Merton, 1971]) under time-varying incomplete preferences driven by externalities such as…
We propose a numerical procedure for computing the prices of European options, in which the underlying asset price is a Markovian strict local martingale. If the underlying process is a strict local martingale and the payoff is of linear…
We study how to unwind stochastic order flow with minimal transaction costs. Stochastic order flow arises, e.g., in the central risk book (CRB), a centralized trading desk that aggregates order flows within a financial institution. The desk…
A new approach to solve the continuous-time stochastic inventory problem using the fluctuation theory of Levy processes is developed. This approach involves the recent developments of the scale function that is capable of expressing many…
In a seminal paper in 1973, Black and Scholes argued how expected distributions of stock prices can be used to price options. Their model assumed a directed random motion for the returns and consequently a lognormal distribution of asset…
A new method for stochastic control based on neural networks and using randomisation of discrete random variables is proposed and applied to optimal stopping time problems. The method models directly the policy and does not need the…
We assume a continuous-time price impact model similar to Almgren-Chriss but with the added assumption that the price impact parameters are stochastic processes modeled as correlated scalar Markov diffusions. In this setting, we develop…
We propose a new method for solving optimal stopping problems (such as American option pricing in finance) under minimal assumptions on the underlying stochastic process $X$. We consider classic and randomized stopping times represented by…
For classification of the high frequency trading quantities, waiting times, price increments within and between sessions are referred to as the a-, b-, and c-increments. Statistics of the a-b-c-increments are computed for the Time & Sales…
Option pricing models, essential in financial mathematics and risk management, have been extensively studied and recently advanced by AI methodologies. However, American option pricing remains challenging due to the complexity of…
In the classical quickest detection problem, one must detect as quickly as possible when a Brownian motion without drift "changes" into a Brownian motion with positive drift. The change occurs at an unknown "disorder" time with exponential…
We develop a model for pricing, lead-time quotation and delay compensation in a Markovian make-to-order production or service system with strategic customers who exhibit risk aversion. Based on a concave utility function of their net…
This paper investigates a time-inconsistent portfolio selection problem in the incomplete mar ket model, integrating expected utility maximization with risk control. The objective functional balances the expected utility and variance on log…
We investigate the growth optimal strategy over a finite time horizon for a stock and bond portfolio in an analytically solvable multiplicative Markovian market model. We show that the optimal strategy consists in holding the amount of…
We consider a periodic-review, fixed-lifetime perishable inventory control problem where demand is a general stochastic process. The optimal solution for this problem is intractable due to "curse of dimensionality". In this paper, we first…
We find the variance-optimal equivalent martingale measure when multivariate assets are modeled by a regime-switching geometric Brownian motion, and the regimes are represented by a homogeneous continuous time Markov chain. Under this new…