Related papers: Optimal measure preserving derivatives revisited
Optimization of distortion riskmetrics with distributional uncertainty has wide applications in finance and operations research. Distortion riskmetrics include many commonly applied risk measures and deviation measures, which are not…
A continuous-time financial portfolio selection model with expected utility maximization typically boils down to solving a (static) convex stochastic optimization problem in terms of the terminal wealth, with a budget constraint. In…
Robust optimization provides a principled framework for decision-making under uncertainty, with broad applications in finance, engineering, and operations research. In portfolio optimization, uncertainty in expected returns and covariances…
Accounting for model uncertainty in risk management and option pricing leads to infinite dimensional optimization problems which are both analytically and numerically intractable. In this article we study when this hurdle can be overcome…
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…
This paper analyzes a problem of optimal static hedging using derivatives in incomplete markets. The investor is assumed to have a risk exposure to two underlying assets. The hedging instruments are vanilla options written on a single…
Market efficiency at least requires the absence of weak arbitrage opportunities, but this is not sufficient to establish a situation where the market is sensitive, i.e., where it "fully reflects" or "rapidly adjusts to" some information…
This paper revisits mean-risk portfolio selection in a one-period financial market, where risk is quantified by a star-shaped risk measure $\rho$. We make three contributions. First, we introduce the new axiom of sensitivity to large…
This paper studies the optimal consumption under the addictive habit formation preference in markets with transaction costs and unbounded random endowments. To model the proportional transaction costs, we adopt the Kabanov's multi-asset…
The optimization of large portfolios displays an inherent instability to estimation error. This poses a fundamental problem, because solutions that are not stable under sample fluctuations may look optimal for a given sample, but are, in…
We give a singular control approach to the problem of minimizing an energy functional for measures with given total mass on a compact real interval, when energy is defined in terms of a completely monotone kernel. This problem occurs both…
We propose a novel distribution-free scheme to solve optimization problems where the goal is to minimize the expected value of a cost function subject to probabilistic constraints. Unlike standard sampling-based methods, our idea consists…
We consider a collection of derivatives that depend on the price of an underlying asset at expiration or maturity. The absence of arbitrage is equivalent to the existence of a risk-neutral probability distribution on the price; in…
This paper introduces a unified framework for battery energy arbitrage under uncertain market prices that integrates chance-constrained terminal state-of-charge requirements with online threshold policies. We first cast the multi-interval…
"Fundamental theorem of asset pricing" roughly states that absence of arbitrage opportunity in a market is equivalent to the existence of a risk-neutral probability. We give a simple counterexample to this oversimplified statement. Prices…
We study an optimal liquidation problem under the ambiguity with respect to price impact parameters. Our main results show that the value function and the optimal trading strategy can be characterized by the solution to a semi-linear PDE…
We investigate a statistical-static hedging technique for pricing assets considered as single-step stochastic cash flows. The valuation is based on constructing in a canonical way a European style derivative on a benchmark security such…
We study buyer-optimal procurement mechanisms when quality is contractible. When some costs are borne by every participant of a procurement auction regardless of winning, the classic analysis should be amended. We show that an optimal…
We consider portfolio optimization under a preference model in a single-period, complete market. This preference model includes Yaari's dual theory of choice and quantile maximization as special cases. We characterize when the optimal…
We propose a data-driven portfolio selection model that integrates side information, conditional estimation and robustness using the framework of distributionally robust optimization. Conditioning on the observed side information, the…