Related papers: Funding Adjustments in Equity Linear Products
The market practice of extrapolating different term structures from different instruments lacks a rigorous justification in terms of cash flows structure and market observables. In this paper, we integrate our previous consistent theory for…
This paper studies arbitrage pricing theory in financial markets with implicit transaction costs. We extend the existing theory to include the more realistic possibility that the price at which the investors trade is dependent on the traded…
Extant literature on fair pricing methods for actuarial contexts has primarily focused on the regression setting. While such approaches are well-suited to short-term products, it is unclear how they generalize to long-term products, whose…
This paper develops a model for option market making in which the hedging activity of the market maker generates price impact on the underlying asset. The option order flow is modeled by Cox processes, with intensities depending on the…
We present an approach to market-consistent multi-period valuation of insurance liability cash flows based on a two-stage valuation procedure. First, a portfolio of traded financial instrument aimed at replicating the liability cash flow is…
Evaluating the financial performance of manufacturing firms requires consideration of both the time value of money and the relative importance of multiple decision criteria. Conventional approaches relying solely on deterministic…
In the paper a problem of risk measures on a discrete-time market model with transaction costs is studied. Strategy effectiveness and shortfall risk is introduced. This paper is a generalization of quantile hedging presented in [4].
Is an option to early terminate a swap at its market value worth zero? At first sight it is, but in presence of counterparty risk it depends on the criteria used to determine such market value. In case of a single uncollateralised swap…
One of the shortcomings of the Black and Scholes model on option pricing is the assumption that trading of the underlying asset does not affect the price of that asset. This assumption can be fulfilled only in perfectly liquid markets.…
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…
A multi-dimensional extension of the structural default model with firms' values driven by diffusion processes with Marshall-Olkin-inspired correlation structure is presented. Semi-analytical methods for solving the forward calibration…
In this work we present a new family of options (mirror options) specially crafted to satisfy the necessities of aggressive speculators. The main ideas behind mirror options are: 1) A product that can be adjusted by the holder to agree with…
The importance of collateralization through the change of funding cost is now well recognized among practitioners. In this article, we have extended the previous studies of collateralized derivative pricing to more generic situation, that…
Credit Valuation Adjustment is a balance sheet item which is nowadays subject to active risk management by specialized traders. However, one of the most important risk factors, which is the vector of default intensities of the counterparty,…
Recent progress in portfolio choice has made a wide class of problems involving transaction costs tractable. We review the basic approach to these problems, and outline some directions for future research.
In the information-based approach to asset pricing the market filtration is modelled explicitly as a superposition of signals concerning relevant market factors and independent noise. The rate at which the signal is revealed to the market…
This paper considers the finite horizon portfolio rebalancing problem in terms of mean-variance optimization, where decisions are made based on current information on asset returns and transaction costs. The study's novelty is that the…
We consider the pricing of derivatives written on the discretely sampled realized variance of an underlying security. In the literature, the realized variance is usually approximated by its continuous-time limit, the quadratic variation of…
We consider a trading marketplace that is populated by traders with diverse trading strategies and objectives. The marketplace allows the suppliers to list their goods and facilitates matching between buyers and sellers. In return, such a…
We introduce a local volatility model for the valuation of options on commodity futures by using European vanilla option prices. The corresponding calibration problem is addressed within an online framework, allowing the use of multiple…