Related papers: Funding Adjustments in Equity Linear Products

This paper sets out a framework for the valuation of insurance liabilities that is intended to be economically realistic, elementary, reasonably practically applicable, and as a special case to provide a basis for the valuation in…

Within a financial model with linear price impact, we study the problem of hedging a covered European option under gamma constraint. Using stochastic target and partial differential equation smoothing techniques, we prove that the…

While Indices, Index tracking funds and ETFs have grown in popularity during then last ten years, there are many structural problems inherent in Index calculation methodologies and the legal/economic structure of ETFs. These problems raise…

The author seeks to develop a model to alter the bid-offer spread, currently quoted by market makers, that varies with the market and trading conditions. The dynamic nature of financial markets and trading, as with the rest of social…

We study the valuation and hedging problem of European options in a market subject to liquidity shocks. Working within a Markovian regime-switching setting, we model illiquidity as the inability to trade. To isolate the impact of such…

In this paper we study the pricing of exchange options when underlying assets have stochastic volatility and stochastic correlation. An approximation using a closed-form approximation based on a Taylor expansion of the conditional price is…

The standard approach for compensating liquidity providers on many decentralized exchanges (DEX) for serving as counter-party to swaps is through charging a small percentage of fees. The expected payoff from the cash flow of this mode of…

In March 2020, the world was thrown into financial distress. This manifested itself in increased uncertainty in the financial markets. Many interest rates collapsed, and funding spreads surged significantly, which increased due to the…

We consider rate swaps which pay a fixed rate against a floating rate in presence of bid-ask spread costs. Even for simple models of bid-ask spread costs, there is no explicit strategy optimizing an expected function of the hedging error.…

Credit Value Adjustment (CVA) is the difference between the value of the default-free and credit-risky derivative portfolio, which can be regarded as the cost of the credit hedge. Default probabilities are therefore needed, as input…

This study derives the expected liquidity cost when performing the delta hedging process of a European option. This cost is represented by an integration formula that includes European option prices and a certain function depending on the…

In this paper we study recent developments in the approximation of the spread option pricing. As the Kirk\'s Approximation is extremely flawed in the cases when the correlation is very high, we explore a recent development that allows…

Understanding mortgage prepayment is crucial for any financial institution providing mortgages, and it is important for hedging the risk resulting from such unexpected cash flows. Here, in the setting of a Dutch mortgage provider, we…

This paper considers the pricing of long-term options on assets such as housing, where either government intervention or the economic nature of the asset is assumed to limit large falls in prices. The observed asset price is modelled by a…

We consider as given a discrete time financial market with a risky asset and options written on that asset and determine both the sub- and super-hedging prices of an American option in the model independent framework of ArXiv:1305.6008. We…

In this paper, we combine modern portfolio theory and option pricing theory so that a trader who takes a position in a European option contract and the underlying assets can construct an optimal portfolio such that at the moment of the…

We develop a unified valuation theory that incorporates credit risk (defaults), collateralization and funding costs, by expanding the replication approach to a generality that has not yet been studied previously and reaching valuation when…

In this paper we analyse financial implications of exchangeability and similar properties of finite dimensional random vectors. We show how these properties are reflected in prices of some basket options in view of the well-known put-call…

We study the problem of option pricing and hedging strategies within the frame-work of risk-return arguments. An economic agent is described by a utility function that depends on profit (an expected value) and risk (a variance). In the…

We describe the pricing and hedging of financial options without the use of probability using rough paths. By encoding the volatility of assets in an enhancement of the price trajectory, we give a pathwise presentation of the replication of…