Related papers: Nonparametric pricing and hedging of exotic deriva…
The objective of this paper is to provide a comprehensive study no-arbitrage pricing of financial derivatives in the presence of funding costs, the counterparty credit risk and market frictions affecting the trading mechanism, such as…
We study the problem of optimal pricing and hedging of a European option written on an illiquid asset $Z$ using a set of proxies: a liquid asset $S$, and $N$ liquid European options $P_i$, each written on a liquid asset $Y_i, i=1,N$. We…
Stochastic differential equation (SDE) models are the foundation for pricing and hedging financial derivatives. The drift and volatility functions in SDE models are typically chosen to be algebraic functions with a small number (less than…
Mathematical models, calibrated to data, have become ubiquitous to make key decision processes in modern quantitative finance. In this work, we propose a novel framework for data-driven model selection by integrating a classical…
A derivative is a financial security whose value is a function of underlying traded assets and market outcomes. Pricing a financial derivative involves setting up a market model, finding a martingale (``fair game") probability measure for…
This paper presents hedging strategies for European and exotic options in a Levy market. By applying Taylor's Theorem, dynamic hedging portfolios are con- structed under different market assumptions, such as the existence of power jump…
The paper introduces benchmark-neutral pricing and hedging for long-term contingent claims. It employs the growth optimal portfolio of the stocks as numeraire and the new benchmark-neutral pricing measure for pricing. For a realistic…
We investigate the optimal execution of contracts that are used in merger\&acquisition deals. We consider cash-settled and physically delivered contracts between a broker and a counterpart. Contracts are linear (total returns swaps),…
In the framework of Black-Scholes-Merton model of financial derivatives, a path integral approach to option pricing is presented. A general formula to price European path dependent options on multidimensional assets is obtained and…
We introduce and discuss a general criterion for the derivative pricing in the general situation of incomplete markets, we refer to it as the No Almost Sure Arbitrage Principle. This approach is based on the theory of optimal strategy in…
This article considers the pricing and hedging of a call option when liquidity matters, that is, either for a large nominal or for an illiquid underlying asset. In practice, as opposed to the classical assumptions of a price-taking agent in…
A simple statement and accessible proof of a version of the Fundamental Theorem of Asset Pricing in discrete time is provided. Careful distinction is made between prices and cash flows in order to provide uniform treatment of all…
This paper studies nonparametric identification and counterfactual bounds for heterogeneous firms that can be ranked in terms of productivity. Our approach works when quantities and prices are latent, rendering standard approaches…
The usual theory of asset pricing in finance assumes that the financial strategies, i.e. the quantity of risky assets to invest, are real-valued so that they are not integer-valued in general, see the Black and Scholes model for instance.…
We study the pricing and hedging of derivative securities with uncertainty about the volatility of the underlying asset. Rather than taking all models from a prespecified class equally seriously, we penalise less plausible ones based on…
Employing probabilistic techniques we compute best possible upper and lower bounds on the price of an option on one or two assets with continuous piecewise linear payoff function based on prices of simple call options of possibly distinct…
Mathematical modelling is ubiquitous in the financial industry and drives key decision processes. Any given model provides only a crude approximation to reality and the risk of using an inadequate model is hard to detect and quantify. By…
We introduce a novel signature approach for pricing and hedging path-dependent options with instantaneous and permanent market impact under a mean-quadratic variation criterion. Leveraging the expressive power of signatures, we recast an…
In this paper we present a theoretical framework for determining dynamic ask and bid prices of derivatives using the theory of dynamic coherent acceptability indices in discrete time. We prove a version of the First Fundamental Theorem of…
This article presents a deep reinforcement learning approach to price and hedge financial derivatives. This approach extends the work of Guo and Zhu (2017) who recently introduced the equal risk pricing framework, where the price of a…