Related papers: How Option Hedging Shapes Market Impact
We introduce a price impact model which accounts for finite market depth, tightness and resilience. Its coupled bid- and ask-price dynamics induce convex liquidity costs. We provide existence of an optimal solution to the classical problem…
This paper presents a framework of imitating the principal investor's behavior for optimal pricing and hedging options. We construct a non-deterministic Markov decision process for modeling stock price change driven by the principal…
We introduce a multivariate Hawkes process that accounts for the dynamics of market prices through the impact of market order arrivals at microstructural level. Our model is a point process mainly characterized by 4 kernels associated with…
Model risk measures consequences of choosing a model in a class of possible alternatives. We find analytical and simulated bounds for payoff functions on classes of plausible alternatives of a given discrete model. We measure the impact of…
We develop a theoretical framework that aims to link micro-level option hedging and stock-specific factor exposure with macro-level market turbulence and explain endogenous volatility amplification during gamma-squeeze events. By explicitly…
In a fixed time horizon, appropriately executing a large amount of a particular asset -- meaning a considerable portion of the volume traded within this frame -- is challenging. Especially for illiquid or even highly liquid but also highly…
We study the problem of optimal trading using general alpha predictors with linear costs and temporary impact. We do this within the framework of stochastic optimization with finite horizon using both limit and market orders. Consistently…
In this paper, we consider the pricing and hedging of a financial derivative for an insider trader, in a model-independent setting. In particular, we suppose that the insider wants to act in a way which is independent of any modelling…
A consistency criterion for price impact functions in limit order markets is proposed that prohibits chain arbitrage exploitation. Both the bid-ask spread and the feedback of sequential market orders of the same kind onto both sides of the…
In this paper we introduce a completely continuous and time-variate model of the evolution of market limit orders based on the existence, uniqueness, and regularity of the solutions to a type of stochastic partial differential equations…
Although behavioral economics has demonstrated that there are many situations where rational choice is a poor empirical model, it has so far failed to provide quantitative models of economic problems such as price formation. We make a step…
Experiments on online marketplaces and social networks suffer from interference, where the outcome of a unit is impacted by the treatment status of other units. We propose a framework for modeling interference using a ubiquitous deployment…
In this work, we present a continuous-time large-population game for modeling market microstructure betweentwo consecutive trades. The proposed modeling framework is inspired by our previous work [23]. In this framework, the Limit Order…
This paper presents a stochastic model for discrete-time trading in financial markets where trading costs are given by convex cost functions and portfolios are constrained by convex sets. The model does not assume the existence of a cash…
In informationally efficient financial markets, option prices and this implied volatility should immediately be adjusted to new information that arrives along with a jump in underlying's return, whereas gradual changes in implied volatility…
In this work we consider three problems of the standard market approach to pricing of credit index options: the definition of the index spread is not valid in general, the usually considered payoff leads to a pricing which is not always…
The extent to which a matching engine can cloud the modelling of underlying order submission and management processes in a financial market remains an unanswered concern with regards to market models. Here we consider a 10-variate Hawkes…
A first attempt at obtaining market--directional information from a non--stationary solution of the dynamic equation "future price tends to the value that maximizes the number of shares traded per unit time" [1] is presented. We demonstrate…
This paper introduces a new algorithmic execution model that integrates interbank limit and market orders with internal liquidity generated through market making. Based on the Cartea et al.\cite{cartea2015algorithmic} framework, we…
The literature on volatility modelling and option pricing is a large and diverse area due to its importance and applications. This paper provides a review of the most significant volatility models and option pricing methods, beginning with…