Related papers: Quadratic Hedging and Optimization of Option Exerc…
We find the variance-optimal equivalent martingale measure when multivariate assets are modeled by a regime-switching geometric Brownian motion, and the regimes are represented by a homogeneous continuous time Markov chain. Under this new…
We expose a theoretical hedging optimization framework with variational preferences under convex risk measures. We explore a general dual representation for the composition between risk measures and utilities. We study the properties of the…
It is well-known that using delta hedging to hedge financial options is not feasible in practice. Traders often rely on discrete-time hedging strategies based on fixed trading times or fixed trading prices (i.e., trades only occur if the…
Given the marginal distribution information of the underlying asset price at two future times $T_1$ and $T_2$, we consider the problem of determining a model-free upper bound on the price of a class of American options that must be…
The problem of stock hedging is reconsidered in this paper, where a put option is chosen from a set of available put options to hedge the market risk of a stock. A formula is proposed to determine the probability that the potential loss…
The paper investigates quadratic hedging in a semimartingale market that does not necessarily contain a risk-free asset. An equivalence result for hedging with and without numeraire change is established. This permits direct computation of…
In this article, we introduce an algorithm called Backward Hedging, designed for hedging European and American options while considering transaction costs. The optimal strategy is determined by minimizing an appropriate loss function, which…
We consider the mean-variance hedging problem under partial information in the case where the flow of observable events does not contain the full information on the underlying asset price process. We introduce a martingale equation of a new…
In a market with a rough or Markovian mean-reverting stochastic volatility there is no perfect hedge. Here it is shown how various delta-type hedging strategies perform and can be evaluated in such markets in the case of European options. A…
We consider the mean-variance hedging problem under partial Information. The underlying asset price process follows a continuous semimartingale and strategies have to be constructed when only part of the information in the market is…
We present a novel method for the numerical pricing of American options based on Monte Carlo simulation and the optimization of exercise strategies. Previous solutions to this problem either explicitly or implicitly determine so-called…
We consider the problem of ESO valuation in continuous time. In particular, we consider models that assume that an appropriate random time serves as a proxy for anything that causes the ESO's holder to exercise the option early, namely,…
Minimizing volatility and adjustment costs is of central importance in many economic environments, yet it is often complicated by evolving feasibility constraints. We study a decision maker who repeatedly selects an action from a…
American options in a multi-asset market model with proportional transaction costs are studied in the case when the holder of an option is able to exercise it gradually at a so-called mixed (randomised) stopping time. The introduction of…
Opportunities for stochastic arbitrage in an options market arise when it is possible to construct a portfolio of options which provides a positive option premium and which, when combined with a direct investment in the underlying asset,…
We present an algorithm producing a dynamic non-self-financing hedging strategy in an incomplete market corresponding to investor-relevant risk criterion. The optimization is a two stage process that first determines admissible model…
We determine the variance-optimal hedge when the logarithm of the underlying price follows a process with stationary independent increments in discrete or continuous time. Although the general solution to this problem is known as backward…
This papers addresses the stock option pricing problem in a continuous time market model where there are two stochastic tradable assets, and one of them is selected as a num\'eraire. It is shown that the presence of arbitrarily small…
In this article we study an optimal stopping/optimal control problem which models the decision facing a risk-averse agent over when to sell an asset. The market is incomplete so that the asset exposure cannot be hedged. In addition to the…
We consider robust pricing and hedging for options written on multiple assets given market option prices for the individual assets. The resulting problem is called the multi-marginal martingale optimal transport problem. We propose two…