Related papers: Quadratic Hedging and Optimization of Option Exerc…
Model risk arises from the misspecification of probabilistic models used for pricing and hedging derivatives. While model risk for European-style claims has been widely studied, much less attention has been given to American-style…
We study a stochastic control problem for continuous multidimensional martingales with fixed quadratic variation. In a radially symmetric environment, we are able to find an explicit solution to the control problem and find an optimal…
A sequential quadratic programming method is designed for solving general smooth nonlinear stochastic optimization problems subject to expectation equality constraints. We consider the setting where the objective and constraint function…
The pricing, hedging, optimal exercise and optimal cancellation of game or Israeli options are considered in a multi-currency model with proportional transaction costs. Efficient constructions for optimal hedging, cancellation and exercise…
The aim of this work consists in the study of the optimal investment strategy for a behavioural investor, whose preference towards risk is described by both a probability distortion and an S-shaped utility function. Within a continuous-time…
The mathematical problem of the static storage optimisation is formulated and solved by means of a variational analysis. The solution obtained in implicit form is shedding light on the most important features of the optimal exercise…
This paper mainly discusses the American option's hedging strategies via binomialmodel and the basic idea of pricing and hedging American option. Although the essential scheme of hedging is almost the same as European option, small…
In this work, we propose an algorithm to price American options by directly solving the dual minimization problem introduced by Rogers. Our approach relies on approximating the set of uniformly square integrable martingales by a finite…
This paper addresses the importance of incorporating various risk measures in portfolio management and proposes a dynamic hybrid portfolio optimization model that combines the spectral risk measure and the Value-at-Risk in the mean-variance…
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…
We study the barrier that gives the optimal time to exercise an American option written on a time-dependent Ornstein--Uhlenbeck process, a diffusion often adopted by practitioners to model commodity prices and interest rates. By framing the…
This work focuses on the dynamic hedging of financial derivatives, where a reinforcement learning algorithm is designed to minimize the variance of the delta hedging process. In contrast to previous research in this area, we apply…
Rough stochastic volatility models have attracted a lot of attentions recently, in particular for the linear option pricing problem. In this paper, starting with power utilities, we propose to use a martingale distortion representation of…
We propose a novel computational procedure for quadratic hedging in high-dimensional incomplete markets, covering mean-variance hedging and local risk minimization. Starting from the observation that both quadratic approaches can be treated…
Linear dynamical systems that obey stochastic differential equations are canonical models. While optimal control of known systems has a rich literature, the problem is technically hard under model uncertainty and there are hardly any…
In Electricity markets, illiquidity, transaction costs and market price characteristics prevent managers to replicate exactly contracts. A residual risk is always present and the hedging strategy depends on a risk criterion chosen. We…
We propose a method for extending a given asset pricing formula to account for two additional sources of risk: the risk associated with future changes in market--calibrated parameters and the remaining risk associated with idiosyncratic…
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…
We consider the robust pricing and hedging of American options in a continuous time setting. We assume asset prices are continuous semimartingales, but we allow for general model uncertainty specification via adapted closed convex…
Duality for robust hedging with proportional transaction costs of path dependent European options is obtained in a discrete time financial market with one risky asset. Investor's portfolio consists of a dynamically traded stock and a static…