Related papers: Risk-neutral pricing for APT
We study a sequential profit-maximization problem, optimizing for both price and ancillary variables like marketing expenditures. Specifically, we aim to maximize profit over an arbitrary sequence of multiple demand curves, each dependent…
This paper proposes a risk-averse approach to energy storage price arbitrage, leveraging conformal uncertainty quantification for electricity price predictions. The method addresses the significant challenges posed by the inherent…
In an incomplete market setting, we consider two financial agents, who wish to price and trade a non-replicable contingent claim. Assuming that the agents are utility maximizers, we propose a transaction price which is a result of the…
We revisit two classical problems: the determination of the law of the underlying with respect to a risk-neutral measure on the basis of option prices, and the pricing of options with convex payoffs in terms of prices of call options with…
We investigate the links between various no-arbitrage conditions and the existence of pricing functionals in general markets, and prove the Fundamental Theorem of Asset Pricing therein. No-arbitrage conditions, either in this abstract…
We study a revenue maximization problem in the context of social networks. Namely, we consider a model introduced by Alon, Mansour, and Tennenholtz (EC 2013) that captures inequity aversion, i.e., prices offered to neighboring vertices…
In an arbitrage-free simple market, we demonstrate that for a class of state-dependent exponential utilities, there exists a unique prediction of the random risk aversion that ensures the consistency of optimal strategies across any time…
We explore the role that random arbitrage opportunities play in hedging financial derivatives. We extend the asymptotic pricing theory presented by Fedotov and Panayides [Stochastic arbitrage return and its implication for option pricing,…
We introduce a setup of model uncertainty in discrete time. In this setup we derive dual expressions for the super--replication prices of game options with upper semicontinuous payoffs. We show that the super--replication price is equal to…
We study the optimal auction design problem when bidders' preferences follow the maxmin expected utility model. We suppose that each bidder's set of priors consists of beliefs close to the seller's belief, where "closeness" is defined by a…
We contrast Arbitrage Pricing Theory (APT), the theoretical basis for the development of financial instruments, with a dynamical picture of an interacting market, in a simple setting. The proliferation of financial instruments apparently…
Consider a discrete-time infinite horizon financial market model in which the logarithm of the stock price is a time discretization of a stochastic differential equation. Under conditions different from those given in a previous paper of…
We present a method based on optimal transport to remove arbitrage opportunities within a finite set of option prices. The method is notably intended for regulatory stress-tests, which require applying significant local distortions to…
Pricing financial or real options with arbitrary payoffs in regime-switching models is an important problem in finance. Mathematically, it is to solve, under certain standard assumptions, a general form of optimal stopping problems in…
We consider the problem of dynamic buying and selling of shares from a collection of $N$ stocks with random price fluctuations. To limit investment risk, we place an upper bound on the total number of shares kept at any time. Assuming that…
In this article we study an optimal stopping/optimal control problem which models the decision facing a risk-averse agent over when to sell an asset. The market is incomplete so that the asset exposure cannot be hedged. In addition to the…
Families of exact solutions are found to a nonlinear modification of the Black-Scholes equation. This risk-adjusted pricing methodology model (RAPM) incorporates both transaction costs and the risk from a volatile portfolio. Using the Lie…
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…
How to hedge factor risks without knowing the identities of the factors? We first prove a general theoretical result: even if the exact set of factors cannot be identified, any risky asset can use some portfolio of similar peer assets to…
We study risk-sharing equilibria with general convex costs on the agents' trading rates. For an infinite-horizon model with linear state dynamics and exogenous volatilities, we prove that the equilibrium returns mean-revert around their…