Related papers: Utility Indifference Pricing with High Risk Aversi…
In this work we present a general representation formula for the price of a vulnerable European option, and the related CVA in stochastic (either rough or not) volatility models for the underlying's price, when admitting correlation with…
We study option pricing and hedging with uncertainty about a Black-Scholes reference model which is dynamically recalibrated to the market price of a liquidly traded vanilla option. For dynamic trading in the underlying asset and this…
We consider a model of linear market impact, and address the problem of replicating a contingent claim in this framework. We derive a non-linear Black-Scholes Equation that provides an exact replication strategy. This equation is fully…
Prediction markets are long known for prediction accuracy. This study systematically explores the fundamental properties of prediction markets, addressing questions about their information aggregation process and the factors contributing to…
The Black-Scholes model gives vanilla Europen call option prices as a function of the volatility. We prove Lipschitz stability in the inverse problem of determining the implied volatility, which is a function of the underlying asset, from a…
This survey reviews recent developments in revealed preference theory. It discusses the testable implications of theories of choice that are germane to specific economic environments. The focus is on expected utility in risky environments;…
We provide analytical tools for pricing power options with exotic features (capped or log payoffs, gap options ...) in the framework of exponential L\'evy models driven by one-sided stable or tempered stable processes. Pricing formulas take…
We study indifference pricing of exotic derivatives by using hedging strategies that take static positions in quoted derivatives but trade the underlying and cash dynamically over time. We use real quotes that come with bid-ask spreads and…
The comparative statics of the optimal portfolios across individuals is carried out for a continuous-time complete market model, where the risky assets price process follows a joint geometric Brownian motion with time-dependent and…
Increased penetration of wind energy will make electricity market prices more volatile. As a result, market participants will bear increased financial risks, which impact investment decisions and in turn, makes it harder to achieve…
In this paper we consider the pricing of variable annuities (VAs) with guaranteed minimum withdrawal benefits. We consider two pricing approaches, the classical risk-neutral approach and the benchmark approach, and we examine the associated…
In this paper we study the short-time behavior of the at-the-money implied volatility for European and arithmetic Asian call options with fixed strike price. The asset price is assumed to follow the Bachelier model with a general stochastic…
In a consideration set model, an individual maximizes utility among the considered alternatives. I relate a consideration set additive random utility model to classic discrete choice and the extended additive random utility model, in which…
We consider the problem of calculating risk-neutral implied volatilities of European options without relying on option mid prices but solely on bid and ask prices. We provide an approach, based on the conic finance paradigm, that allows to…
In this paper we study optimal investment when the investor can peek some time units into the future, but cannot fully take advantage of this knowledge because of quadratic transaction costs. In the Bachelier setting with exponential…
We consider a two-asset non-linear model of option pricing in an environment where the correlation is not known precisely, but varies between two known values. First we discuss the non-negativity of the solution of the equation. Next, we…
We develop efficient algorithms to construct utility maximizing mechanisms in the presence of risk averse players (buyers and sellers) in Bayesian settings. We model risk aversion by a concave utility function, and players play…
In a model with no given probability measure, we consider asset pricing in the presence of frictions and other imperfections and characterize the property of coherent pricing, a notion related to (but much weaker than) the no arbitrage…
We investigate a continuous-time investment-consumption problem with model uncertainty in a general diffusion-based market with random model coefficients. We assume that a power utility investor is ambiguity-averse, with the preference to…
The paper develops general, discrete, non-probabilistic market models and minmax price bounds leading to price intervals for European options. The approach provides the trajectory based analogue of martingale-like properties as well as a…