Related papers: Risk-neutral pricing for APT
We present an optimal investment theorem for a currency exchange model with random and possibly discontinuous proportional transaction costs. The investor's preferences are represented by a multivariate utility function, allowing for…
The classical optimal investment and consumption problem with infinite horizon is studied in the presence of transaction costs. Both proportional and fixed costs as well as general utility functions are considered. Weak dynamic programming…
In this work we study the optimal execution problem with multiplicative price impact in algorithm trading, when an agent holds an initial position of shares of a financial asset. The inter-selling-decision times are modelled by the arrival…
This paper analyzes optimal insurance design when the insurer internalizes the effect of coverage on third-party service prices. A monopolistic insurer contracts with risk-averse agents who have sequential two-dimensional private…
In the theory of riskfree hedges in continuous time finance, one can start with the delta-hedge and derive the option pricing equation, or one can start with the replicating, self-financing hedging strategy and derive both the delta-hedge…
We introduce a price impact model which accounts for finite market depth, tightness and resilience. Its coupled bid- and ask-price dynamics induce convex liquidity costs. We provide existence of an optimal solution to the classical problem…
An investor with constant absolute risk aversion trades a risky asset with general It\^o-dynamics, in the presence of small proportional transaction costs. In this setting, we formally derive a leading-order optimal trading policy and the…
We study the problem of reinforcement learning in infinite-horizon discounted linear Markov decision processes (MDPs), and propose the first computationally efficient algorithm achieving rate-optimal regret guarantees in this setting. Our…
Over the past decade, many dealers have implemented algorithmic models to automatically respond to RFQs and manage flows originating from their electronic platforms. In parallel, building on the foundational work of Ho and Stoll, and later…
We study the modelling and valuation of surrender and other behavioural options in life insurance and pension. We place ourselves in between the two extremes of completely arbitrary intervention and optimal intervention by the policyholder.…
We study asset price bubbles in market models with proportional transaction costs $\lambda\in (0,1)$ and finite time horizon $T$ in the setting of [49]. By following [28], we define the fundamental value $F$ of a risky asset $S$ as the…
This article clarifies the relationship between pricing kernel monotonicity and the existence of opportunities for stochastic arbitrage in a complete and frictionless market of derivative securities written on a market portfolio. The…
We develop a dual-control method for approximating investment strategies in incomplete environments that emerge from the presence of trading constraints. Convex duality enables the approximate technology to generate lower and upper bounds…
In this paper we ask whether, given a stock market and an illiquid derivative, there exists arbitrage-free prices at which an utility-maximizing agent would always want to buy the derivative, irrespectively of his own initial endowment of…
Financial contagion has been widely recognized as a fundamental risk to the financial system. Particularly potent is price-mediated contagion, wherein forced liquidations by firms depress asset prices and propagate financial stress,…
We consider portfolio optimization in futures markets. We model the entire futures price curve at once as a solution of a stochastic partial differential equation. The agents objective is to maximize her utility from the final wealth when…
Shadow prices simplify the derivation of optimal trading strategies in markets with transaction costs by transferring optimization into a more tractable, frictionless market. This paper establishes that a na\"ive shadow price Ansatz for…
This paper presents a widely applicable approach to solving (multi-marginal, martingale) optimal transport and related problems via neural networks. The core idea is to penalize the optimization problem in its dual formulation and reduce it…
We consider the pricing problem facing a seller of a contingent claim. We assume that this seller has some general level of partial information, and that he is not allowed to sell short in certain assets. This pricing problem, which is our…
We study optimal buying and selling strategies in target zone models. In these models the price is modeled by a diffusion process which is reflected at one or more barriers. Such models arise for example when a currency exchange rate is…