Related papers: Risk-neutral pricing for APT
We propose a general approximation method for determining optimal trading strategies in markets with proportional transaction costs, with a polynomial approximation of the residual value function. The method is exemplified by several…
This paper addresses a novel data science problem, prescriptive price optimization, which derives the optimal price strategy to maximize future profit/revenue on the basis of massive predictive formulas produced by machine learning. The…
This article examines arbitrage investment in a mispriced asset when the mispricing follows the Ornstein-Uhlenbeck process and a credit-constrained investor maximizes a generalization of the Kelly criterion. The optimal differentiable and…
We consider a market consisting of one safe and one risky asset, which offer constant investment opportunities. Taking into account both proportional transaction costs and linear price impact, we derive optimal rebalancing policies for…
In this paper we study simulation based optimization algorithms for solving discrete time optimal stopping problems. This type of algorithms became popular among practioneers working in the area of quantitative finance. Using large…
We prove limit theorems for the super-replication cost of European options in a Binomial model with friction. The examples covered are markets with proportional transaction costs and the illiquid markets. The dual representation for the…
We study the explicit calculation of the set of superhedging portfolios of contingent claims in a discrete-time market model for d assets with proportional transaction costs. The set of superhedging portfolios can be obtained by a recursive…
We present here a regress later based Monte Carlo approach that uses neural networks for pricing high-dimensional contingent claims. The choice of specific architecture of the neural networks used in the proposed algorithm provides for…
We study a dynamic asset pricing problem in which a representative agent is ambiguous about the aggregate endowment growth rate and trades a risky stock, human capital, and a risk-free asset to maximize her preference value of consumption…
We consider a utility-maximization problem in a general semimartingale financial model, subject to constraints on the number of shares held in each risky asset. These constraints are modeled by predictable convex-set-valued processes whose…
In this paper, we use replica analysis to determine the investment strategy that can maximize the net present value for portfolios containing multiple development projects. Replica analysis was developed in statistical mechanical…
We introduce a new framework for optimal routing and arbitrage in AMM driven markets. This framework improves on the original best-practice convex optimization by restricting the search to the boundary of the optimal space. We can…
We introduce a two-agent problem which is inspired by price asymmetry arising from funding difference. When two parties have different funding rates, the two parties deduce different fair prices for derivative contracts even under the same…
We use a continuous version of the standard deviation premium principle for pricing in incomplete equity markets by assuming that the investor issuing an unhedgeable derivative security requires compensation for this risk in the form of a…
We prove the superhedging duality for a discrete-time financial market with proportional transaction costs under model uncertainty. Frictions are modeled through solvency cones as in the original model of [Kabanov, Y., Hedging and…
In an incomplete market the price of a claim f in general cannot be uniquely identified by no arbitrage arguments. However, the ``classical'' super replication price is a sensible indicator of the (maximum selling) value of the claim. When…
For several decades, the no-arbitrage (NA) condition and the martingale measures have played a major role in the financial asset's pricing theory. We propose a new approach for estimating the super-replication cost based on convex duality…
By the classical Martingale Representation Theorem, replication of random vectors can be achieved via stochastic integrals or solutions of stochastic differential equations. We introduce a new approach to replication of random vectors via…
We study optimal investment problems under the framework of cumulative prospect theory (CPT). A CPT investor makes investment decisions in a single-period financial market with transaction costs. The objective is to seek the optimal…
It is well known that the minimal superhedging price of a contingent claim is too high for practical use. In a continuous-time model uncertainty framework, we consider a relaxed hedging criterion based on acceptable shortfall risks.…