Related papers: Risk-Neutral Market Simulation
Mandatory emission trading schemes are being established around the world. Participants of such market schemes are always exposed to risks. This leads to the creation of an accompanying market for emission-linked derivatives. To evaluate…
In information theory -- as well as in the adjacent fields of statistics, machine learning, artificial intelligence, signal processing and pattern recognition -- many flexibilizations of the omnipresent Kullback-Leibler information distance…
We study a financial market where the risky asset is modelled by a geometric It\^o-L\'{e}vy process, with a singular drift term. This can for example model a situation where the asset price is partially controlled by a company which…
Trading markets represent a real-world financial application to deploy reinforcement learning agents, however, they carry hard fundamental challenges such as high variance and costly exploration. Moreover, markets are inherently a…
We quantify model risk of a financial portfolio whereby a multi-period mean-standard-deviation criterion is used as a selection criterion. In this work, model risk is defined as the loss due to uncertainty of the underlying distribution of…
Sampling-based model predictive control (MPC) has the potential for use in a wide variety of robotic systems. However, its unstable updates and poor convergence render it unsuitable for real-time control of robotic systems. This study…
Our goal is to analyze the system of Hamilton-Jacobi-Bellman equations arising in derivative securities pricing models. The European style of an option price is constructed as a difference of the certainty equivalents to the value functions…
We consider a trading marketplace that is populated by traders with diverse trading strategies and objectives. The marketplace allows the suppliers to list their goods and facilitates matching between buyers and sellers. In return, such a…
In this paper we study a risk-minimizing hedging problem for a semimartingale incomplete financial market where d+1 assets are traded continuously and whose price is expressed in units of the num\'{e}raire portfolio. According to the…
We study risk-sharing economies where heterogenous agents trade subject to quadratic transaction costs. The corresponding equilibrium asset prices and trading strategies are characterised by a system of nonlinear, fully-coupled…
We consider the optimal investment and marginal utility pricing problem of a risk averse agent and quantify their exposure to a small amount of model uncertainty. Specifically, we compute explicitly the first-order sensitivity of their…
In this paper, we implement and test two types of market-based models for European-type options, based on the tangent Levy models proposed recently by R. Carmona and S. Nadtochiy. As a result, we obtain a method for generating Monte Carlo…
As generative AI models are increasingly used to simulate real-world systems, quantifying the ``sim-to-real'' gap is critical. For each input setting of interest -- which we call a \emph{scenario}, such as a survey question or operating…
We study the valuation and hedging problem of European options in a market subject to liquidity shocks. Working within a Markovian regime-switching setting, we model illiquidity as the inability to trade. To isolate the impact of such…
We study the problem of optimal portfolio selection in an illiquid market with discrete order flow. In this market, bids and offers are not available at any time but trading occurs more frequently near a terminal horizon. The investor can…
The paper considers the problem of robust estimating a periodic function in a continuous time regression model with dependent disturbances given by a general square integrable semimartingale with unknown distribution. An example of such a…
We analyze the martingale selection problem of Rokhlin (2006) in a pointwise (robust) setting. We derive conditions for solvability of this problem and show how it is related to the classical no-arbitrage deliberations. We obtain versions…
In complex systems, many different parts interact in non-obvious ways. Traditional research focuses on a few or a single aspect of the problem so as to analyze it with the tools available. To get a better insight of phenomena that emerge…
In this article we study an optimal stopping/optimal control problem which models the decision facing a risk-averse agent over when to sell an asset. The market is incomplete so that the asset exposure cannot be hedged. In addition to the…
We investigate the relation between the fair price for European-style vanilla options and the distribution of short-term returns on the underlying asset ignoring transaction and other costs. We compute the risk-neutral probability density…