Related papers: Hedging Non-Tradable Risks with Transaction Costs …

We study the problem of dynamically trading a futures contract and its underlying asset under a stochastic basis model. The basis evolution is modeled by a stopped scaled Brownian bridge to account for non-convergence of the basis at…

We study the problem of maximising terminal utility for an agent facing model uncertainty, in a frictionless discrete-time market with one safe asset and finitely many risky assets. We show that an optimal investment strategy exists if the…

This paper explores the utility of agent-based simulations in realistically modelling market structures and sheds light on the nuances of optimal dealer strategies. It underscores the contrast between conclusions drawn from probabilistic…

Deep hedging (Buehler et al. 2019) is a versatile framework to compute the optimal hedging strategy of derivatives in incomplete markets. However, this optimal strategy is hard to train due to action dependence, that is, the appropriate…

A class of heterogeneous agent models is investigated where investors switch trading position whenever their motivation to do so exceeds some critical threshold. These motivations can be psychological in nature or reflect behaviour…

Options are contingent claims regarding the value of underlying assets. The Black-Scholes formula provides a road map for pricing these options in a risk-neutral setting, justified by a delta hedging argument in which countervailing…

In the classical principal-agent problem, a principal must design a contract to incentivize an agent to perform an action on behalf of the principal. We study the classical principal-agent problem in a setting where the agent can be of one…

We study optimal contract design for large populations of heterogeneous agents whose actions generate network spillovers represented by an interaction function. In a linear-quadratic framework, we solve the finite-agent problem and its…

We study optimal liquidation of a trading position (so-called block order or meta-order) in a market with a linear temporary price impact (Kyle, 1985). We endogenize the pressure to liquidate by introducing a downward drift in the…

We present a method for finding optimal hedging policies for arbitrary initial portfolios and market states. We develop a novel actor-critic algorithm for solving general risk-averse stochastic control problems and use it to learn hedging…

This study develops a multi-factor framework where not only market risk is considered but also potential changes in the investment opportunity set. Although previous studies find no clear evidence about a positive and significant relation…

We model an informed agent with information about the future value of an asset trying to maximize profits when subjected to a transaction cost as well as a market maker tasked with setting fair transaction prices. In a single auction model,…

We introduce a stochastic heterogeneous interacting-agent model for the short-time non-equilibrium evolution of excess demand and price in a stylized asset market. We consider a combination of social interaction within peer groups and…

The cryptocurrency market is volatile, non-stationary and non-continuous. Together with liquid derivatives markets, this poses a unique opportunity to study risk management, especially the hedging of options, in a turbulent market. We study…

In this paper, we study the optimal investment problem considering the herd behaviour between two agents, including one leading expert and one following agent whose decisions are influenced by those of the leading expert. In the objective…

We consider an insurance company whose surplus is represented by the classical Cramer-Lundberg process. The company can invest its surplus in a risk free asset and in a risky asset, governed by the Black-Scholes equation. There is a…

We introduce a two-agent problem which is inspired by price asymmetry arising from funding difference. When two parties have different funding rates, the two parties deduce different fair prices for derivative contracts even under the same…

Prepayment risk embedded in fixed-rate mortgages forms a significant fraction of a financial institution's exposure, and it receives particular attention because of the magnitude of the underlying market. The embedded prepayment option…

This paper is concerned with the study of insurance related derivatives on financial markets that are based on non-tradable underlyings, but are correlated with tradable assets. We calculate exponential utility-based indifference prices,…

We introduce a new framework to model interactions among agents which seek to trade to minimize their risk with respect to some future outcome. We quantify this risk using the concept of risk measures from finance, and introduce a class of…