Related papers: Optimal Hedging in Incomplete Markets
We propose a deep learning approach to study the minimal variance pricing and hedging problem in an incomplete jump diffusion market. It is based upon a rigorous stochastic calculus derivation of the optimal hedging portfolio, optimal…
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…
The main objective of this paper is to develop a martingale-type solution to optimal consumption--investment choice problems ([Merton, 1969] and [Merton, 1971]) under time-varying incomplete preferences driven by externalities such as…
We propose a pricing technique based on coherent risk measures, which enables one to get finer price intervals than in the No Good Deals pricing. The main idea consists in splitting a liability into several parts and selling these parts to…
Discrete time hedging in a complete diffusion market is considered. The hedge portfolio is rebalanced when the absolute difference between delta of the hedge portfolio and the derivative contract reaches a threshold level. The rate of…
We consider an expected utility maximization problem where the utility function is not necessarily concave and the time horizon is uncertain. We establish a necessary and sufficient condition for the optimality for general non-concave…
According to the fundamental theorems of welfare economics, any competitive equilibrium is Pareto efficient. Unfortunately, competitive equilibrium prices only exist under strong assumptions such as perfectly divisible goods and convex…
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 propose a new `hedged' Monte-Carlo (HMC) method to price financial derivatives, which allows to determine simultaneously the optimal hedge. The inclusion of the optimal hedging strategy allows one to reduce the financial risk associated…
We consider a utility-maximization problem in a general semimartingale financial model, subject to constraints on the number of shares held in each risky asset. These constraints are modeled by predictable convex-set-valued processes whose…
The Marketron model, introduced by [Halperin, Itkin, 2025], describes price formation in inelastic markets as the nonlinear diffusion of a quasiparticle (the marketron) in a multidimensional space comprising the log-price $x$, a memory…
We consider the problem of the optimal trading strategy in the presence of a price predictor, linear trading costs and a quadratic risk control. The solution is known to be a band system, a policy that induces a no-trading zone in the…
We study and solve the worst-case optimal portfolio problem as pioneered by Korn and Wilmott (2002) of an investor with logarithmic preferences facing the possibility of a market crash with stochastic market coefficients by enhancing the…
This paper presents hedging strategies for European and exotic options in a Levy market. By applying Taylor's Theorem, dynamic hedging portfolios are con- structed under different market assumptions, such as the existence of power jump…
We present a framework for hedging a portfolio of derivatives in the presence of market frictions such as transaction costs, market impact, liquidity constraints or risk limits using modern deep reinforcement machine learning methods. We…
In this work, we consider the optimal portfolio selection problem under hard constraints on trading volume amounts when the dynamics of the risky asset returns are governed by a discrete-time approximation of the Markov-modulated geometric…
We consider an investor who wants to hedge a path-dependent option with maturity $T$ using a static hedging portfolio using cash, the underlying, and vanilla put/call options on the same underlying with maturity $ t_1$, where $0 < t_1 < T$.…
We consider an infinite horizon portfolio problem with borrowing constraints, in which an agent receives labor income which adjusts to financial market shocks in a path dependent way. This path-dependency is the novelty of the model, and…
We study the problem of optimal portfolio selection under stochastic volatility within a continuous time reinforcement learning framework with portfolio constraints. Exploration is modeled through entropy-regularized relaxed controls, where…
We examine the problem of optimal portfolio allocation within the framework of utility theory. We apply exponential utility to derive the optimal diversification strategy and logarithmic utility to determine the optimal leverage. We enhance…