Related papers: Risk-Control Strategies
This paper introduces a novel approach to addressing uncertainty and associated risks in power system management, focusing on the discrepancies between forecasted and actual values of load demand and renewable power generation. By employing…
In this work, we consider the optimal portfolio selection problem under hard constraints on trading volume amounts when the dynamics of the risky asset returns are governed by a discrete-time approximation of the Markov-modulated geometric…
In complete markets, there are risky assets and a riskless asset. It is assumed that the riskless asset and the risky asset are traded continuously in time and that the market is frictionless. In this paper, we propose a new method for…
Effective risk management solutions become absolutely crucial when financial markets embrace distributed technology and decentralized financing (DeFi). This study offers a thorough survey and comparative analysis of the integration of…
In recent decades, companies have frequently adopted share repurchase programs to return capital to shareholders or for other strategic purposes, instructing investment banks to rapidly buy back shares on their behalf. When the executing…
Recent years have seen an increased level of interest in pricing equity options under a stochastic volatility model such as the Heston model. Often, simulating a Heston model is difficult, as a standard finite difference scheme may lead to…
This paper is devoted to the price-storage dynamics in natural gas markets. A novel stochastic path-dependent volatility model is introduced with path-dependence in both price volatility and storage increments. Model calibrations are…
Stablecoins face an unresolved trilemma of balancing decentralization, stability, and regulatory compliance. We present a hybrid stabilization protocol that combines crypto-collateralized reserves, algorithmic futures contracts, and…
We present a framework for hedging a portfolio of derivatives in the presence of market frictions such as transaction costs, market impact, liquidity constraints or risk limits using modern deep reinforcement machine learning methods. We…
In this paper, we propose an equilibrium pricing model in a dynamic multi-period stochastic framework with uncertain income streams. In an incomplete market, there exist two traded risky assets (e.g. stock/commodity and weather derivative)…
We consider both discrete and continuous "uncertain horizon" deterministic control processes, for which the termination time is a random variable. We examine the dynamic programming equations for the value function of such processes,…
This paper studies a discrete-time optimal switching problem on a finite horizon. The underlying model has a running reward, terminal reward and signed (positive and negative) switching costs. Using the martingale approach to optimal…
We present a new model for credit index derivatives, in the top-down approach. This model has a dynamic loss intensity process with volatility and jumps and can include counterparty risk. It handles CDS, CDO tranches, Nth-to-default and…
We propose different schemes for option hedging when asset returns are modeled using a general class of GARCH models. More specifically, we implement local risk minimization and a minimum variance hedge approximation based on an extended…
Non-equilibrium phenomena occur not only in physical world, but also in finance. In this work, stochastic relaxational dynamics (together with path integrals) is applied to option pricing theory. A recently proposed model (by Ilinski et…
We construct a binomial model for a guaranteed minimum withdrawal benefit (GMWB) rider to a variable annuity (VA) under optimal policyholder behaviour. The binomial model results in explicitly formulated perfect hedging strategies funded…
The main purpose of the paper is to derive Thiele's differential equation for unit-linked policies in the Heston-Hawkes stochastic volatility model introduced in arXiv:2210.15343. This model is an extension of the well-known Heston model…
The pricing of options, warrants and other derivative securities is one of the great success of financial economics. These financial products can be modeled and simulated using quantum mechanical instruments based on a Hamiltonian…
We propose a hedging approach for general contingent claims when liquidity is a concern and trading is subject to transaction cost. Multiple assets with different liquidity levels are available for hedging. Our risk criterion targets a…
By adopting a distributional viewpoint on law-invariant convex risk measures, we construct dynamics risk measures (DRMs) at the distributional level. We then apply these DRMs to investigate Markov decision processes, incorporating latent…