Related papers: Optimal Hedging in Incomplete Markets
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…
The completeness problem of the bond market model with the random factors determined by a Wiener process and Poisson random measure is studied. Hedging portfolios use bonds with maturities in a countable, dense subset of a finite time…
This paper analyzes a problem of optimal static hedging using derivatives in incomplete markets. The investor is assumed to have a risk exposure to two underlying assets. The hedging instruments are vanilla options written on a single…
We study the problem of optimal portfolio selection in an illiquid market with discrete order flow. In this market, bids and offers are not available at any time but trading occurs more frequently near a terminal horizon. The investor can…
In an incomplete market driven by time-changed L\'evy noises we consider the problem of hedging a financial position coupled with the underlying risk of model uncertainty. Then we study hedging under worst-case-scenario. The proposed…
This paper investigates a continuous-time portfolio optimization problem with the following features: (i) a no-short selling constraint; (ii) a leverage constraint, that is, an upper limit for the sum of portfolio weights; and (iii) a…
This paper studies the topic of cost-efficiency in incomplete markets. A payoff is called cost-efficient if it achieves a given probability distribution at some given investment horizon with a minimum initial budget. Extensive literature…
We consider an optimal investment problem to maximize expected utility of the terminal wealth, in an illiquid market with search frictions and transaction costs. In the market model, an investor's attempt of transaction is successful only…
We present a new approach for studying the problem of optimal hedging of a European option in a finite and complete discrete-time market model. We consider partial hedging strategies that maximize the success probability or minimize the…
Optimal B-robust estimate is constructed for multidimensional parameter in drift coefficient of diffusion type process with small noise. Optimal mean-variance robust (optimal V -robust) trading strategy is find to hedge in mean-variance…
Models trained under assumptions in the complete market usually don't take effect in the incomplete market. This paper solves the hedging problem in incomplete market with three sources of incompleteness: risk factor, illiquidity, and…
A solution to a portfolio optimization problem is always conditioned by constraints on the initial capital and the price of the available market assets. If a risk neutral measure is known, then the price of each asset is the discounted…
In this work, we address the optimal retirement problem in the presence of a stochastic wage, formulated as a free boundary problem. Specifically, we explore an incomplete market setting where the wage cannot be perfectly hedged through…
With model uncertainty characterized by a convex, possibly non-dominated set of probability measures, the agent minimizes the cost of hedging a path dependent contingent claim with given expected success ratio, in a discrete-time,…
The question of pricing and hedging a given contingent claim has a unique solution in a complete market framework. When some incompleteness is introduced, the problem becomes however more difficult. Several approaches have been adopted in…
We study a robust portfolio optimization problem under model uncertainty for an investor with logarithmic or power utility. The uncertainty is specified by a set of possible L\'evy triplets; that is, possible instantaneous drift, volatility…
In a financial market model, we consider variations of the problem of minimizing the expected time to upcross a certain wealth level. For exponential Levy markets, we show the asymptotic optimality of the growth-optimal portfolio for the…
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…
Value adjustment of uncollateralized trades is determined within a risk-neutral pricing framework. When hedging such trades, investors cannot freely trade protection on their own name, thus facing an incomplete market. This fact is…
In the paper we develop mathematical tools of quantile hedging in incomplete market. Those could be used for two significant applications: o calculating the \textbf{optimal capital requirement imposed by Solvency II} (Directive 2009/138/EC…