Related papers: Dollar Cost Averaging Returns Estimation
The collateral choice option gives the collateral posting party the opportunity to switch between different collateral currencies which is well-known to impact the asset price. Quantification of the option's value is of practical importance…
Balancing a rare and serious possibility against a more common and less serious one is a familiar problem in many situations, such as the prediction of rare diseases. The relative costs of forecasting errors can be used for any prediction…
This paper studies an optimal trading problem that incorporates the trader's market view on the terminal asset price distribution and uninformative noise embedded in the asset price dynamics. We model the underlying asset price evolution by…
There is a growing body of work on sorting and selection in models other than the unit-cost comparison model. This work is the first treatment of a natural stochastic variant of the problem where the cost of comparing two elements is a…
A system manager dynamically controls a diffusion process Z that lives in a finite interval [0,b]. Control takes the form of a negative drift rate \theta that is chosen from a fixed set A of available values. The controlled process evolves…
This work examines the expected computational cost to determine an approximate global minimum of a class of cost functions characterized by the variance of coefficients. The cost function takes $N$-dimensional binary states as arguments and…
We consider a financial market where the asset price follows a fractional Brownian motion. We introduce a family of investment strategies, and quantify profit possibilities for both persistent and antipersistant markets.
We solve the pricing problem for perpetual American puts and calls on dividend-paying assets. The dependence of a dividend process on the underlying stochastic factor is fairly general: any non-decreasing function is admissible. The…
In this paper, we consider the drawdown and drawup of the fractional Brownian motion with trend, which corresponds to the logarithm of geometric fractional Brownian motion representing the stock price in financial market. We derive the…
We consider a general aggregation framework for discounted finite-state infinite horizon dynamic programming (DP) problems. It defines an aggregate problem whose optimal cost function can be obtained off-line by exact DP and then used as a…
A central problem of Quantitative Finance is that of formulating a probabilistic model of the time evolution of asset prices allowing reliable predictions on their future volatility. As in several natural phenomena, the predictions of such…
Consider a discrete finite-dimensional, Markovian market model. In this setting, discretely sampled American options can be priced using the so-called ``non-recombining'' tree algorithm. By successively increasing the number of exercise…
In this paper, we revisit the portfolio allocation problem with designated risk-budget [Qian, 2005]. We generalize the problem of arbitrary risk budgets with unequal correlations to one that includes return forecasts and transaction costs…
Optimal control models for limit order trading often assume that the underlying asset price is a Brownian motion since they deal with relatively short time scales. The resulting optimal bid and ask limit order prices tend to track the…
In this paper, we consider the finite-state approximation of a discrete-time constrained Markov decision process (MDP) under the discounted and average cost criteria. Using the linear programming formulation of the constrained discounted…
In this paper we consider the problem of minimising drawdown in a portfolio of financial assets. Here drawdown represents the relative opportunity cost of the single best missed trading opportunity over a specified time period. We formulate…
American options are studied in a general discrete market in the presence of proportional transaction costs, modelled as bid-ask spreads. Pricing algorithms and constructions of hedging strategies, stopping times and martingale…
In this paper we provide a comprehensive analysis of a structural model for the dynamics of prices of assets traded in a market originally proposed in [1]. The model takes the form of an interacting generalization of the geometric Brownian…
Universal features in stock markets and their derivative markets are studied by means of probability distributions in internal rates of return on buy and sell transaction pairs. Unlike the stylized facts in log normalized returns, the…
We analyze an irreversible investment decision for a project which yields a flow of future operating profits given by a geometric Brownian motion with unknown drift. In contrast to similar optimal stopping problems with incomplete…