Related papers: Risk-Neutral Market Simulation
We construct realistic spot and equity option market simulators for a single underlying on the basis of normalizing flows. We address the high-dimensionality of market observed call prices through an arbitrage-free autoencoder that…
We present a machine learning approach for finding minimal equivalent martingale measures for markets simulators of tradable instruments, e.g. for a spot price and options written on the same underlying. We extend our results to markets…
We present a numerically efficient approach for learning a risk-neutral measure for paths of simulated spot and option prices up to a finite horizon under convex transaction costs and convex trading constraints. This approach can then be…
In this paper, we examine the capacity of an arbitrage-free neural-SDE market model to produce realistic scenarios for the joint dynamics of multiple European options on a single underlying. We subsequently demonstrate its use as a risk…
This paper presents a new financial market simulator that may be used as a tool in both industry and academia for research in market microstructure. It allows multiple automated traders and/or researchers to simultaneously connect to an…
We study the formation of derivative prices in equilibrium between risk-neutral agents with heterogeneous beliefs about the dynamics of the underlying. Under the condition that the derivative cannot be shorted, we prove the existence of a…
A market with asymmetric information can be viewed as a repeated exchange game between the informed sector and the uninformed one. In a market with risk-neutral agents, De Meyer [2010] proves that the price process should be a particular…
Model risk measures consequences of choosing a model in a class of possible alternatives. We find analytical and simulated bounds for payoff functions on classes of plausible alternatives of a given discrete model. We measure the impact of…
Modelling joint dynamics of liquid vanilla options is crucial for arbitrage-free pricing of illiquid derivatives and managing risks of option trade books. This paper develops a nonparametric model for the European options book respecting…
We study markets with no riskless (safe) asset. We derive the corresponding Black-Scholes-Merton option pricing equations for markets where there are only risky assets which have the following price dynamics: (i) continuous diffusions; (ii)…
A derivative is a financial security whose value is a function of underlying traded assets and market outcomes. Pricing a financial derivative involves setting up a market model, finding a martingale (``fair game") probability measure for…
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…
Risk-neutral pricing dictates that the discounted derivative price is a martingale in a measure equivalent to the economic measure. The residual ambiguity for incomplete markets is here resolved by minimising the entropy of the price…
We propose a continuous-time model of trading with heterogeneous beliefs. Risk-neutral agents face quadratic costs-of-carry on positions and thus their marginal valuations decrease with the size of their position, as it would be the case…
This paper investigates the optimal choices of financial derivatives to complete a financial market in the framework of stochastic volatility (SV) models. We introduce an efficient and accurate simulation-based method, applicable to…
We study a robust stochastic optimization problem in the quasi-sure setting in discrete-time. We show that under a lineality-type condition the problem admits a maximizer. This condition is implied by the no-arbitrage condition in models of…
With model uncertainty characterized by a convex, possibly non-dominated set of probability measures, the agent minimizes the cost of hedging a path dependent contingent claim with given expected success ratio, in a discrete-time,…
Recent empirical studies suggest that the volatility of an underlying price process may have correlations that decay slowly under certain market conditions. In this paper, the volatility is modeled as a stationary process with long-range…
We derive integral tests for the existence and absence of arbitrage in a financial market with one risky asset which is either modeled as stochastic exponential of an Ito process or a positive diffusion with Markov switching. In particular,…
We consider a financial market model with a single risky asset whose price process evolves according to a general jump-diffusion with locally bounded coefficients and where market participants have only access to a partial information flow.…