Related papers: Cost-efficiency in Incomplete Markets
We present a number of examples and counterexamples to illustrate the results on cost-efficiency in an incomplete market obtained in [BS24]. These examples and counterexamples do not only illustrate the results obtained in [BS24], but show…
The effectiveness of utility-maximization techniques for portfolio management relies on our ability to estimate correctly the parameters of the dynamics of the underlying financial assets. In the setting of complete or incomplete financial…
Dybvig (1988a,b) solves in a complete market setting the problem of finding a payoff that is cheapest possible in reaching a given target distribution ("cost-efficient payoff"). In the presence of ambiguity, the distribution of a payoff is,…
We consider the problem of optimal hedging in an incomplete market with an established pricing kernel. In such a market, prices are uniquely determined, but perfect hedges are usually not available. We work in the rather general setting of…
We consider the problem of utility maximization for small traders on incomplete financial markets. As opposed to most of the papers dealing with this subject, the investors' trading strategies we allow underly constraints described by…
In this paper, we consider a financial market with assets exposed to some risks inducing jumps in the asset prices, and which can still be traded after default times. We use a default-intensity modeling approach, and address in this…
Most decision theories, including expected utility theory, rank dependent utility theory and cumulative prospect theory, assume that investors are only interested in the distribution of returns and not in the states of the economy in which…
We consider a multi-stock continuous time incomplete market model with random coefficients. We study the investment problem in the class of strategies which do not use direct observations of the appreciation rates of the stocks, but rather…
We study the ex-ante minimization of market inefficiency, defined in terms of minimum deviation of market prices from fundamental values, from a centralized planner's perspective. Prices are pressured from exogenous trading actions of…
This article studies the problem of utility maximization in an incomplete market under a class of nonlinear expectations and general constraints on trading strategies. Using a $g$-martingale method, we provide an explicit solution to our…
This paper considers an optimal life insurance for a householder subject to mortality risk. The household receives a wage income continuously, which is terminated by unexpected (premature) loss of earning power or (planned and intended)…
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…
In an incomplete market setting, we consider two financial agents, who wish to price and trade a non-replicable contingent claim. Assuming that the agents are utility maximizers, we propose a transaction price which is a result of the…
We investigate an optimal investment problem with a general performance criterion which, in particular, includes discontinuous functions. Prices are modeled as diffusions and the market is incomplete. We find an explicit solution for the…
We introduce a criterion how to price derivatives in incomplete markets, based on the theory of growth optimal strategy in repeated multiplicative games. We present reasons why these growth-optimal strategies should be particularly relevant…
This paper studies a type of periodic utility maximization for portfolio management in an incomplete market model, where the underlying price diffusion process depends on some external stochastic factors. The portfolio performance is…
I prove that if markets are weak-form efficient, meaning current prices fully reflect all information available in past prices, then P = NP, meaning every computational problem whose solution can be verified in polynomial time can also be…
We study an optimal consumption and investment problem in a possibly incomplete market with general, not necessarily convex, stochastic constraints. We give explicit solutions for investors with exponential, logarithmic and power utility.…
We construct an utility-based dynamic asset pricing model for a limit order market. The price is nonlinear in volume and subject to market impact. We solve an optimal hedging problem under the market impact and derive the dynamics of the…
We propose to study market efficiency from a computational viewpoint. Borrowing from theoretical computer science, we define a market to be \emph{efficient with respect to resources $S$} (e.g., time, memory) if no strategy using resources…