Related papers: Hedging Non-Tradable Risks with Transaction Costs …
Value adjustment of uncollateralized trades is determined within a risk-neutral pricing framework. When hedging such trades, investors cannot freely trade protection on their own name, thus facing an incomplete market. This fact is…
We present a simple model of a non-equilibrium self-organizing market where asset prices are partially driven by investment decisions of a bounded-rational agent. The agent acts in a stochastic market environment driven by various exogenous…
In this paper, we explore the use of a deep residual U-net with self-attention to solve the the continuous time time-consistent mean variance optimal trade execution problem for multiple agents and assets. Given a finite horizon we…
In a market with a rough or Markovian mean-reverting stochastic volatility there is no perfect hedge. Here it is shown how various delta-type hedging strategies perform and can be evaluated in such markets in the case of European options. A…
This article examines arbitrage investment in a mispriced asset when the mispricing follows the Ornstein-Uhlenbeck process and a credit-constrained investor maximizes a generalization of the Kelly criterion. The optimal differentiable and…
We consider an agent who needs to buy (or sell) a relatively small amount of asset over some fixed short time interval. We work at the highest frequency meaning that we wish to find the optimal tactic to execute our quantity using limit…
An agent-based modelling methodology for the joint price evolution of two stocks is put forward. The method models future multidimensional price trajectories reflecting how a class of agents rebalance their portfolios in an operational way…
We study risk-sharing economies where heterogenous agents trade subject to quadratic transaction costs. The corresponding equilibrium asset prices and trading strategies are characterised by a system of nonlinear, fully-coupled…
We study hedging and pricing of unattainable contingent claims in a non-Markovian regime-switching financial model. Our financial market consists of a bank account and a risky asset whose dynamics are driven by a Brownian motion and a…
In this paper we show how risk-averse reinforcement learning can be used to hedge options. We apply a state-of-the-art risk-averse algorithm: Trust Region Volatility Optimization (TRVO) to a vanilla option hedging environment, considering…
We point out some major drawbacks in random trading market models and propose a realistic modification which overcomes such drawbacks through `sensible trading'. We apply such trading policy in different situations: a) Agents with zero…
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),…
The paper presents an advanced version of an adaptive market-making agent capable of performing experiential learning, exploiting a "try and fail" approach relying on a swarm of subordinate agents executed in a virtual environment to…
We study an infinite-horizon optimal investment, consumption and insurance problem for an economic agent who consumes a perishable and a durable good. The agent trades in a risk-free asset, a risky asset, and a durable good whose price…
We consider the multi-period portfolio optimization problem with a single asset that can be held long or short. Due to the presence of transaction costs, maximizing the immediate reward at each period may prove detrimental, as frequent…
Hedging in the presence of transaction costs leads to complex optimization problems. These problems typically lack closed-form solutions, and their implementation relies on numerical methods that provide hedging strategies for specific…
We present a novel, game theoretic representation of a multi-agent prediction market using a partially observable stochastic game with information (POSGI). We then describe a correlated equilibrium (CE)-based solution strategy for this game…
We consider the problem of option hedging in a market with proportional transaction costs. Since super-replication is very costly in such markets, we replace perfect hedging with an expected loss constraint. Asymptotic analysis for small…
We study a single risky financial asset model subject to price impact and transaction cost over an infinite horizon. An investor needs to execute a long position in the asset affecting the price of the asset and possibly incurring in fixed…
We investigate brokerage between traders from an online learning perspective. At any round $t$, two traders arrive with their private valuations, and the broker proposes a trading price. Unlike other bilateral trade problems already studied…