Related papers: A central bank strategy for defending a currency p…
This paper continues the examination of inventory control in which the inventory is modelled by a diffusion process and a long-term average cost criterion is used to make decisions. The class of such models under consideration have general…
Many countries have adopted negative interest rate policies with tiering remuneration, which allows for exemption from negative rates. This practice has led to higher interbank trading volumes, with market rates ranging between zero and the…
We study hedging and pricing of unattainable contingent claims in a non-Markovian regime-switching financial model. Our financial market consists of a bank account and a risky asset whose dynamics are driven by a Brownian motion and a…
This paper presents the way in which can be determined the exchange rates that simultaneously balance the trade balances of all countries that trade with each other within a common market. A mathematical synthesis between the theory of…
We analyze the risks to bank intermediation following the introduction of a central bank digital currency (CBDC) competing with commercial bank deposits as households' source of liquidity. We revisit the result in the literature regarding…
We study optimal buying and selling strategies in target zone models. In these models the price is modeled by a diffusion process which is reflected at one or more barriers. Such models arise for example when a currency exchange rate is…
Deciding bank interest rates has been a long-standing challenge in finance. It is crucial to ensure that the selected rates balance market share and profitability. However, traditional approaches typically focus on the interest rate changes…
In this study, we introduce an explicit trading-volume process into the Almgren-Chriss model, which is a standard model for optimal execution. We propose a penalization method for deriving a verification theorem for an adaptive optimization…
We prove the existence of an equilibrium in a model with transaction costs and price impact where two agents are incentivized to trade towards a target. The two types of frictions -- price impact and transaction costs -- lead the agents to…
This paper investigates and compares currency substitution between the currencies of Central and Eastern European (CEE) countries and the euro. In addition, we develop a model with microeconomic foundations, which identifies difference…
We consider a market where a finite number of players trade an asset whose supply is a stochastic process. The price formation problem consists of finding a price process that ensures that when agents act optimally to minimize their trading…
This paper examines the impact of US monetary policy tightening on emerging markets, distinguishing between direct and indirect spillover effects using the global vector autoregression with stochastic volatility covering 32 countries. The…
We assume a continuous-time price impact model similar to Almgren-Chriss but with the added assumption that the price impact parameters are stochastic processes modeled as correlated scalar Markov diffusions. In this setting, we develop…
In this paper, we introduce a novel framework to model the exchange rate dynamics between two intrinsically linked cryptoassets, such as stablecoins pegged to the same fiat currency or a liquid staking token and its associated native token.…
In this paper we aim to improve existing empirical exchange rate models by accounting for uncertainty with respect to the underlying structural representation. Within a flexible Bayesian non-linear time series framework, our modeling…
We extend the QLBS model by reformulating via considering a large trader whose transactions leave a permanent impact on the evolution of the exchange rate process and therefore affect the price of contingent claims on such processes.…
We first show that there are in fact triangular arbitrage opportunities in the spot foreign exchange markets, analyzing the time dependence of the yen-dollar rate, the dollar-euro rate and the yen-euro rate. Next, we propose a model of…
We analyze a monetary system of random money transfer on the basis of double entry bookkeeping. Without boundary conditions, we do not reach a price equilibrium and violate text-book formulas of economists quantity theory (MV=PQ). To match…
We study optimal monetary policy when a central bank maximizes a quantile utility objective rather than expected utility. In our framework, the central bank's risk attitude is indexed by the quantile index level, providing a transparent…
Consider the problem of a government that wants to reduce the debt-to-GDP (gross domestic product) ratio of a country. The government aims at choosing a debt reduction policy which minimises the total expected cost of having debt, plus the…