Related papers: Cross impact in derivative markets
We present a perturbation theory of the market impact based on an extension of the framework proposed by [Loeper, 2018] -- originally based on [Liu and Yong, 2005] -- in which we consider only local linear market impact. We study the…
The article is an empirical study of market impact through order book events. It describes a mechanism of extracting an average participation rate and a market impact of small orders which represent individual slices of large metaorders.…
A common assumption in financial engineering is that the market price for any derivative coincides with an objectively defined risk-neutral price - a plausible assumption only if traders collectively possess objective knowledge about the…
We develop a methodology for index tracking and risk exposure control using financial derivatives. Under a continuous-time diffusion framework for price evolution, we present a pathwise approach to construct dynamic portfolios of…
We consider insurance derivatives depending on an external physical risk process, for example a temperature in a low dimensional climate model. We assume that this process is correlated with a tradable financial asset. We derive optimal…
The impact of trades on asset prices is a crucial aspect of market dynamics for academics, regulators and practitioners alike. Recently, universal and highly nonlinear master curves were observed for price impacts aggregated on all…
In this research, we have empirically investigated the key drivers affecting liquidity in equity markets. We illustrated how theoretical models, such as Kyle's model, of agents' interplay in the financial markets, are aligned with the…
This article considers the pricing and hedging of a call option when liquidity matters, that is, either for a large nominal or for an illiquid underlying asset. In practice, as opposed to the classical assumptions of a price-taking agent in…
This article presents a generic framework for modeling the dynamics of forward curves in commodity market as commodity derivatives are typically traded by futures or forwards. We have theoretically demonstrated that commodity prices are…
In this chapter, we consider volatility swap, variance swap and VIX future pricing under different stochastic volatility models and jump diffusion models which are commonly used in financial market. We use convexity correction approximation…
We define what "Price Impact" means, and how it is measured and modelled in the recent literature. Although this notion seems to convey the idea of a forceful and intuitive mechanism, we discuss why things might not be that simple.…
We present a stochastic local volatility model for derivative contracts on commodity futures. The aim of the model is to be able to recover the prices of derivative claims both on futures contracts and on indices on futures strategies.…
We propose a probabilistic framework for pricing derivatives, which acknowledges that information and beliefs are subjective. Market prices can be translated into implied probabilities. In particular, futures imply returns for these implied…
In order to emphasize cross-correlations for fluctuations in major market places, series of up and down spins are built from financial data. Patterns frequencies are measured, and statistical tests performed. Strong cross-correlations are…
We construct a price impact model between stocks in a correlated market. For the price change of a given stock induced by the short-run liquidity of this stock itself and of the information about other stocks, we introduce a self- and a…
Using tools from spectral analysis, singular and regular perturbation theory, we develop a systematic method for analytically computing the approximate price of a derivative-asset. The payoff of the derivative-asset may be path-dependent.…
We analyze the relative price change of assets starting from basic supply/demand considerations subject to arbitrary motivations. The resulting stochastic differential equation has coefficients that are functions of supply and demand. We…
We design three continuous--time models in finite horizon of a commodity price, whose dynamics can be affected by the actions of a representative risk--neutral producer and a representative risk--neutral trader. Depending on the model, the…
Travel time derivatives are financial instruments that derive their value from road travel times, serving as an underlying asset that cannot be directly traded. Within the transportation domain, these derivatives are proposed as a more…
We price European options in a class of models in which the volatility of the underlying risky asset depends on the short rate of interest. Our study results in an explicit pricing formula that depends on knowledge of a characteristic…