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We introduce a tractable multi-currency model with stochastic volatility and correlated stochastic interest rates that takes into account the smile in the FX market and the evolution of yield curves. The pricing of vanilla options on FX…
This paper studies a valuation framework for financial contracts subject to reference and counterparty default risks with collateralization requirement. We propose a fixed point approach to analyze the mark-to-market contract value with…
This paper expands on stochastic volatility models by proposing a data-driven method to select the macroeconomic events most likely to impact volatility. The paper identifies and quantifies the effects of macroeconomic events across…
It is shown that prize changes of the US dollar - German Mark exchange rates upon different delay times can be regarded as a stochastic Marcovian process. Furthermore we show that from the empirical data the Kramers-Moyal coefficients can…
We study a simple problem of allocating common-value goods. The designer seeks to allocate the goods to as many unit-demand agents as possible without monetary transfers, while agents, who possess partial private information about the…
In stochastic multi-factor commodity models, it is often the case that futures prices are explained by two latent state variables which represent the short and long term stochastic factors. In this work, we develop the family of stochastic…
This paper studies a continuous-time market {under stochastic environment} where an agent, having specified an investment horizon and a target terminal mean return, seeks to minimize the variance of the return with multiple stocks and a…
Understanding variable dependence, particularly eliciting their statistical properties given a set of covariates, provides the mathematical foundation in practical operations management such as risk analysis and decision-making given…
In this paper new analytical and numerical approaches to valuating path-dependent options of European type have been developed. The model of stochastic volatility as a basic model has been chosen. For European options we could improve the…
Much of the trading activity in Equity markets is directed to brokerage houses. In exchange they provide so-called "soft dollars," which basically are amounts spent in "research" for identifying profitable trading opportunities. Soft…
In this paper, we have studied the pricing of a continuously collateralized CDS. We have made use of the "survival measure" to derive the pricing formula in a straightforward way. As a result, we have found that there exists irremovable…
We introduce a new stochastic duration model for transaction times in asset markets. We argue that widely accepted rules for aggregating seemingly related trades mislead inference pertaining to durations between unrelated trades: while any…
Stochastic optimization problems often involve data distributions that change in reaction to the decision variables. This is the case for example when members of the population respond to a deployed classifier by manipulating their features…
Opportunities for stochastic arbitrage in an options market arise when it is possible to construct a portfolio of options which provides a positive option premium and which, when combined with a direct investment in the underlying asset,…
In economic studies and popular media, interest rates are routinely cited as a major factor behind commodity price fluctuations. At the same time, the transmission channels are far from transparent, leading to long-running debates on the…
We introduce a new method to price American-style options on underlying investments governed by stochastic volatility (SV) models. The method does not require the volatility process to be observed. Instead, it exploits the fact that the…
We study a two-dimensional McKean-Vlasov stochastic differential equation, whose volatility coefficient depends on the conditional distribution of the second component with respect to the first component. We prove the strong existence and…
The purpose of this work is to explore the role that arbitrage opportunities play in pricing financial derivatives. We use a non-equilibrium model to set up a stochastic portfolio, and for the random arbitrage return, we choose a stationary…
We derive a new high-order compact finite difference scheme for option pricing in stochastic volatility jump models, e.g. in Bates model. In such models the option price is determined as the solution of a partial integro-differential…
We consider the problem of estimating assortment probabilities, which is common in operations management applications, including product bundling, advertising, etc. Existing approaches typically model each assortment as a category and apply…