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We develop a model for indifference pricing in derivatives markets where price quotes have bid-ask spreads and finite quantities. The model quantifies the dependence of the prices and hedging portfolios on an investor's beliefs, risk…
Financial markets are of much interest to researchers due to their dynamic and stochastic nature. With their relations to world populations, global economies and asset valuations, understanding, identifying and forecasting trends and…
Discrete time hedging in a complete diffusion market is considered. The hedge portfolio is rebalanced when the absolute difference between delta of the hedge portfolio and the derivative contract reaches a threshold level. The rate of…
This paper studies the problem of option replication in general stochastic volatility markets with transaction costs, using a new specification for the volatility adjustment in Leland's algorithm \cite{Leland}. We prove several limit…
In a universe with a single currency, there would be no foreign exchange market, no foreign exchange rates, and no foreign exchange. Over the past twenty-five years, the way the market has performed those tasks has changed enormously. The…
In this research work, an explicit Runge-Kutta-Fehlberg (RKF) time integration with a fourth-order compact finite difference scheme in space and a high order analytical approximation of the optimal exercise boundary is employed for solving…
This article considers the pricing and hedging of a call option when liquidity matters, that is, either for a large nominal or for an illiquid underlying asset. In practice, as opposed to the classical assumptions of a price-taking agent in…
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…
The use of non-translation invariant risk measures within the equal risk pricing (ERP) methodology for the valuation of financial derivatives is investigated. The ability to move beyond the class of convex risk measures considered in…
This paper presents novel results generated from a new simulation model of a contemporary financial market, that cast serious doubt on the previously widely accepted view of the relative performance of various well-known public-domain…
This paper extends the Singular Fourier--Pad\'e (SFP) method proposed by Chan (2018) to pricing/hedging early-exercise options--Bermudan, American and discrete-monitored barrier options--under a L\'evy process. The current SFP method is…
We extend the QLBS model by reformulating via considering a large trader whose transactions leave a permanent impact on the evolution of the exchange rate process and therefore affect the price of contingent claims on such processes.…
In an observed generalized semi-Markov regime, estimation of transition rate of regime switching leads towards calculation of locally risk minimizing option price. Despite the uniform convergence of estimated step function of transition…
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…
We study the capability of arbitrage-free neural-SDE market models to yield effective strategies for hedging options. In particular, we derive sensitivity-based and minimum-variance-based hedging strategies using these models and examine…
We consider model-free pricing of digital options, which pay out if the underlying asset has crossed both upper and lower barriers. We make only weak assumptions about the underlying process (typically continuity), but assume that the…
Derivatives, as a critical class of financial instruments, isolate and trade the price attributes of risk assets such as stocks, commodities, and indices, aiding risk management and enhancing market efficiency. However, traditional hedging…
We refine the analysis of hedging strategies for options under the SABR model carried out in [2]. In particular, we provide a theoretical justification of the empirical observation made in [2] that the modified delta ("Bartlett's delta")…
The trade off between risks and returns gives rise to multi-criteria optimisation problems that are well understood in finance, efficient frontiers being the tool to navigate their set of optimal solutions. Motivated by the recent advances…
In a financial market model, we consider the variance-optimal semi-static hedging of a given contingent claim, a generalization of the classic variance-optimal hedging. To obtain a tractable formula for the expected squared hedging error…