Related papers: Clearing prices under margin calls and the short s…
In this paper, we develop a theory of market crashes resulting from a deleveraging shock. We consider two representative investors in a market holding different opinions about the public available information. The deleveraging shock forces…
I unravel the basic long run dynamics of the broker call money market, which is the pile of cash that funds margin loans to retail clients (read: continuous time Kelly gamblers). Call money is assumed to supply itself perfectly…
A mean-reverting financial instrument is optimally traded by buying it when it is sufficiently below the estimated `mean level' and selling it when it is above. In the presence of linear transaction costs, a large amount of value is paid…
This paper derives the expressions of correlations between prices of two assets, returns of two assets, and price-return correlations of two assets that depend on statistical moments and correlations of the current values, past values, and…
This paper examines the pricing issue of margin-call stock loans with finite maturities under the Black-Scholes-Merton framework. In particular, using a Fourier Sine transform method, we reduce the partial differential equation governing…
I present an overview of some recent advancements on the empirical analysis and theoretical modeling of the process of price formation in financial markets as the result of the arrival of orders in a limit order book exchange. After…
We present a general derivation of the arbitrage-free pricing framework for multiple-currency collateralized products. We include the impact on option pricing of the policy adopted to fund in foreign currency, so that we are able to price…
The introduction of CCPs in most derivative transactions will dramatically change the landscape of derivatives pricing, hedging and risk management, and, according to the TABB group, will lead to an overall liquidity impact about 2 USD…
Market equilibria of matching markets offer an intuitive and fair solution for matching problems without money with agents who have preferences over the items. Such a matching market can be viewed as a variation of Fisher market, albeit…
In this paper, which is the third installment of the author's trilogy on margin loan pricing, we analyze $1,367$ monthly observations of the U.S. broker call money rate, which is the interest rate at which stock brokers can borrow to fund…
The problem of obtaining market-clearing prices for markets with non-convexities has been widely studied in the literature. This is particularly the case in electricity markets, where worldwide deregulation leads to markets in which…
In this paper we present a simple, but new, approximation methodology for pricing a call option in a Black \& Scholes market characterized by stochastic interest rates. The method, based on a straightforward Gaussian moment matching…
This paper proposes a theory of pricing premised upon the assumptions that customers dislike unfair prices---those marked up steeply over cost---and that firms take these concerns into account when setting prices. Since they do not observe…
We present the method of moments approach to pricing barrier-type options when the underlying is modelled by a general class of jump diffusions. By general principles the option prices are linked to certain infinite dimensional linear…
We study the problem of asset liquidation in financial systems. During financial crises, asset liquidation is often inevitable but can lead to substantial losses if a significant amount of illiquid assets are sold simultaneously at…
In this work we propose a heuristic clearing method of day-ahead electricity markets. In the first part of the process, a computationally less demanding problem is solved using an approximation of the cumulative demand and supply curves,…
Estimating market impact and transaction costs of large trades (metaorders) is a very important topic in finance. However, using models of price and trade based on public market data provide average price trajectories which are…
This survey outlines a general and modular theory for proving approximation guarantees for equilibria of auctions in complex settings. This theory complements traditional economic techniques, which generally focus on exact and optimal…
We obtain an exact necessary and sufficient condition for the existence and uniqueness of equilibrium asset prices in infinite horizon, discrete-time, arbitrage free environments. Through several applications we show how the condition…
It is well known that the minimal superhedging price of a contingent claim is too high for practical use. In a continuous-time model uncertainty framework, we consider a relaxed hedging criterion based on acceptable shortfall risks.…