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We study the pricing and hedging of derivatives in incomplete financial markets by considering the local risk-minimization method in the context of the benchmark approach, which will be called benchmarked local risk-minimization. We show…
We investigate the optimal strategy over a finite time horizon for a portfolio of stock and bond and a derivative in an multiplicative Markovian market model with transaction costs (friction). The optimization problem is solved by a…
This article examines neural network-based approximations for the superhedging price process of a contingent claim in a discrete time market model. First we prove that the $\alpha$-quantile hedging price converges to the superhedging price…
In this work we study the price-hedge issue for general defaultable contracts characterized by the presence of a contingent CSA of switching type. This is a contingent risk mitigation mechanism that allow the counterparties of a defaultable…
Financial contagion has been widely recognized as a fundamental risk to the financial system. Particularly potent is price-mediated contagion, wherein forced liquidations by firms depress asset prices and propagate financial stress,…
We propose a model which can be jointly calibrated to the corporate bond term structure and equity option volatility surface of the same company. Our purpose is to obtain explicit bond and equity option pricing formulas that can be…
This paper studies the pricing and hedging of derivatives in frictionless and competitive, but incomplete jump-diffusion markets. A unique equivalent martingale measure (EMM) is obtained using filtration reduction to a fictitious complete…
We introduce a method to estimate simultaneously the tail and the threshold parameters of an extreme value regression model. This standard model finds its use in finance to assess the effect of market variables on extreme loss distributions…
We study the problem of super-replication for game options under proportional transaction costs. We consider a multidimensional continuous time model, in which the discounted stock price process satisfies the conditional full support…
The aim of this paper is to study a new methodological framework for systemic risk measures by applying deep learning method as a tool to compute the optimal strategy of capital allocations. Under this new framework, systemic risk measures…
Stochastic differential equation (SDE) models are the foundation for pricing and hedging financial derivatives. The drift and volatility functions in SDE models are typically chosen to be algebraic functions with a small number (less than…
We revisit the problem of pricing and hedging plain vanilla single-currency interest rate derivatives using multiple distinct yield curves for market coherent estimation of discount factors and forward rates with different underlying rate…
In financial engineering, prices of financial products are computed approximately many times each trading day with (slightly) different parameters in each calculation. In many financial models such prices can be approximated by means of…
The Libor market model is a mainstay term structure model of interest rates for derivatives pricing, especially for Bermudan swaptions, and other exotic Libor callable derivatives. For numerical implementation the pricing of derivatives…
We use a continuous version of the standard deviation premium principle for pricing in incomplete equity markets by assuming that the investor issuing an unhedgeable derivative security requires compensation for this risk in the form of a…
One of the most fundamental questions in quantitative finance is the existence of continuous-time diffusion models that fit market prices of a given set of options. Traditionally, one employs a mix of intuition, theoretical and empirical…
In this paper, we provide a model-independent extension of the paradigm of dynamic hedging of derivative claims. We relate model-independent replication strategies to local martingales having a closed form which we can characterise via…
In this paper we provide a quantitative analysis to the concept of arbitrage, that allows to deal with model uncertainty without imposing the no-arbitrage condition. In markets that admit ``small arbitrage", we can still make sense of the…
The objective of this research was to evaluate and gain experience with application of two methods used for pricing and sensitivity analysis of exotic financial derivative instruments, namely, automatic adjoint differentiation (AAD) and…
This paper analyzes the pricing of collateralized derivatives, i.e. contracts where counterparties are not only subject to financial derivatives cash flows but also to collateral cash flows arising from a collateral agreement. We do this…