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Explicit robust hedging strategies for convex or concave payoffs under a continuous semimartingale model with uncertainty and small transaction costs are constructed. In an asymptotic sense, the upper and lower bounds of the cumulative…
We present a new class of Bayesian dynamic models for bivariate price-realized volatility time series in financial forecasting. A novel dynamic gamma process model adopted for realized volatility is integrated with traditional Bayesian…
Building on the work of Schweizer (1995) and Cern and Kallseny (2007), we present discrete time formulas minimizing the mean square hedging error for multidimensional assets. In particular, we give explicit formulas when a regime-switching…
We present a numerically efficient approach for learning a risk-neutral measure for paths of simulated spot and option prices up to a finite horizon under convex transaction costs and convex trading constraints. This approach can then be…
Can an asset manager plan the optimal timing for her/his hedging strategies given market conditions? The standard approach based on Markowitz or other more or less sophisticated financial rules aims to find the best portfolio allocation…
We study pricing and hedging under parameter uncertainty for a class of Markov processes which we call generalized affine processes and which includes the Black-Scholes model as well as the constant elasticity of variance (CEV) model as…
Wireless power transfer and energy harvesting have attracted a significant research attention in terms of their application in cooperative relaying systems. Most of existing works in this field focus on the half-duplex (HD) relaying…
This paper studies the problem of hedging and pricing a European call option under proportional transaction costs, from two complementary perspectives. We first derive the optimal hedging strategy under CARA utility, following the…
We derive the price of a spread option based on two assets which follow a bivariate volatility modulated Volterra process dynamics. Such a price dynamics is particularly relevant in energy markets, modelling for example the spot price of…
Barrier derivatives depend on extrema and first-passage events and are therefore highly sensitive to volatility dynamics -- especially to the instantaneous return-volatility correlation $\rho$, often called ``leverage''. This sensitivity…
We study the problem of dynamically trading futures in a regime-switching market. Modeling the underlying asset price as a Markov-modulated diffusion process, we present a utility maximization approach to determine the optimal futures…
In FX cash markets, market makers provide liquidity to clients for a wide variety of currency pairs. Because of flow uncertainty and market volatility, they face inventory risk. To mitigate this risk, they typically skew their prices to…
Foreign Exchange (FOREX) is a decentralised global market for exchanging currencies. The Forex market is enormous, and it operates 24 hours a day. Along with country-specific factors, Forex trading is influenced by cross-country ties and a…
This paper presents hedging strategies for European and exotic options in a Levy market. By applying Taylor's Theorem, dynamic hedging portfolios are con- structed under different market assumptions, such as the existence of power jump…
We define a regularized variant of the Dual Dynamic Programming algorithm called REDDP (REgularized Dual Dynamic Programming) to solve nonlinear dynamic programming equations. We extend the algorithm to solve nonlinear stochastic dynamic…
Recently, incomplete-market techniques have been used to develop a model applicable to credit default swaps (CDSs) with results obtained that are quite different from those obtained using the market-standard model. This article makes use of…
We suggest an intermediate currency approach that allows us to price options on all FX markets simultaneously under the same risk-neutral measure which ensures consistency of FX option prices across all markets. In particular, it is…
We investigate the performance of the Deep Hedging framework under training paths beyond the (finite dimensional) Markovian setup. In particular we analyse the hedging performance of the original architecture under rough volatility models…
We present a dynamic hedging scheme for S&P 500 options, where rebalancing decisions are enhanced by integrating information about the implied volatility surface dynamics. The optimal hedging strategy is obtained through a deep policy…
We evaluate the hedging performance of a high-order compact finite difference scheme from [4] for option pricing in Bates model. We compare the scheme's hedging performance to standard finite difference methods in different examples. We…