Related papers: Change of measure under the hard-to-borrow model
American put options are among the most frequently traded single stock options, and their calibration is computationally challenging since no closed-form expression is available. Due to the higher flexibility in comparison to European…
We introduce a model for limit order book of a certain security with two main features: First, both the limit orders and market orders for the given asset are allowed to appear and interact with each other. Second, the high frequency…
This paper develops a deep learning-based framework for pricing convertible bonds with path-dependent contractual features, namely downward conversion price reset and issuer call clauses under rolling-window trigger rules, which are…
When dealing with Heston's stochastic volatility model, the change of measure from the subjective measure P to the objective measure Q is usually investigated under the assumption that the Feller condition is satisfied. This paper closes…
The dynamic hedging theory only makes sense in the setup of one given model, whereas the practice of dynamic hedging is just the opposite, with models fleeing after the data through daily recalibration. This is quite of a quantitative…
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…
This paper is concerned with a pairs trading rule. The idea is to monitor two historically correlated securities. When divergence is underway, i.e., one stock moves up while the other moves down, a pairs trade is entered which consists of a…
We study non-linear Backward Stochastic Differential Equations (BSDEs) driven by a Brownian motion and p default martingales. The driver of the BSDE with multiple default jumps can take a generalized form involving an optional finite…
In a Markovian framework, we consider the problem of finding the minimal initial value of a controlled process allowing to reach a stochastic target with a given level of expected loss. This question arises typically in approximate hedging…
Hawkes processes were first introduced to obtain microscopic models for the rough volatility observed in asset prices. Scaling limits of such processes leads to the rough-Heston model that describes the macroscopic behavior. Blanc et al.…
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 consider the problem of maximizing expected utility for a power investor who can allocate his wealth in a stock, a defaultable security, and a money market account. The dynamics of these security prices are governed by geometric Brownian…
Providing a measure of market risk is an important issue for investors and financial institutions. However, the existing models for this purpose are per definition symmetric. The current paper introduces an asymmetric capital asset pricing…
With the reform of interest rate benchmarks, interbank offered rates (IBORs) like LIBOR have been replaced by risk-free rates (RFRs), such as the Secured Overnight Financing Rate (SOFR) in the U.S. and the Euro Short-Term Rate (\euro STR)…
A parametric model order reduction (MOR) approach for simulating the high dimensional models arising in financial risk analysis is proposed on the basis of the proper orthogonal decomposition (POD) approach to generate small model…
In the classical model of stock prices which is assumed to be Geometric Brownian motion, the drift and the volatility of the prices are held constant. However, in reality, the volatility does vary. In quantitative finance, the Heston model…
We develop a new market-making model, from the ground up, which is tailored towards high-frequency trading under a limit order book (LOB), based on the well-known classification of order types in market microstructure. Our flexible…
Since risky positions in multivariate portfolios can be offset by various choices of capital requirements that depend on the exchange rules and related transaction costs, it is natural to assume that the risk measures of random vectors are…
An advantageous feature of piecewise constant policy timestepping for Hamilton-Jacobi-Bellman (HJB) equations is that different linear approximation schemes, and indeed different meshes, can be used for the resulting linear equations for…
We propose a continuous-time model of trading with heterogeneous beliefs. Risk-neutral agents face quadratic costs-of-carry on positions and thus their marginal valuations decrease with the size of their position, as it would be the case…