Related papers: Stochastic arbitrage with market index options

The valuation process that economic agents undergo for investments with uncertain payoff typically depends on their statistical views on possible future outcomes, their attitudes toward risk, and, of course, the payoff structure itself.…

We study the upper hedging price for contingent claims in market models with strong types of arbitrage: increasing profit, strong arbitrage, and arbitrage of the first kind. The existence of arbitrage may make the price smaller than if it…

We construct and study market models admitting optimal arbitrage. We say that a model admits optimal arbitrage if it is possible, in a zero-interest rate setting, starting with an initial wealth of 1 and using only positive portfolios, to…

Stochastic optimization problems often involve data distributions that change in reaction to the decision variables. This is the case for example when members of the population respond to a deployed classifier by manipulating their features…

This paper presents a computation-efficient stochastic dynamic programming algorithm for solving energy storage price arbitrage considering variable charge and discharge efficiencies. We formulate the price arbitrage problem using…

Online bidding is a classic optimization problem, with several applications in online decision-making, the design of interruptible systems, and the analysis of approximation algorithms. In this work, we study online bidding under…

We study the optimal timing of derivative purchases in incomplete markets. In our model, an investor attempts to maximize the spread between her model price and the offered market price through optimally timing her purchase. Both the…

Most insurance contracts are inherently linked to financial markets, be it via interest rates, or -- as hybrid products like equity-linked life insurance and variable annuities -- directly to stocks or indices. However, insurance contracts…

We determine the variance-optimal hedge when the logarithm of the underlying price follows a process with stationary independent increments in discrete or continuous time. Although the general solution to this problem is known as backward…

We analyze the relative price change of assets starting from basic supply/demand considerations subject to arbitrary motivations. The resulting stochastic differential equation has coefficients that are functions of supply and demand. We…

We introduce a novel signature approach for pricing and hedging path-dependent options with instantaneous and permanent market impact under a mean-quadratic variation criterion. Leveraging the expressive power of signatures, we recast an…

In the option valuation literature, the shortcomings of one factor stochastic volatility models have traditionally been addressed by adding jumps to the stock price process. An alternate approach in the context of option pricing and…

Stochastic versions of proximal methods have gained much attention in statistics and machine learning. These algorithms tend to admit simple, scalable forms, and enjoy numerical stability via implicit updates. In this work, we propose and…

Stochastic algorithms are among the best for solving computationally hard search and reasoning problems. The runtime of such procedures is characterized by a random variable. Different algorithms give rise to different probability…

We study hedging and pricing of unattainable contingent claims in a non-Markovian regime-switching financial model. Our financial market consists of a bank account and a risky asset whose dynamics are driven by a Brownian motion and a…

We give a new formulation of the relative arbitrage problem from stochastic portfolio theory that asks for a time horizon beyond which arbitrage relative to the market exists in all ``sufficiently volatile'' markets. In our formulation,…

In the application of machine learning to real-life decision-making systems, e.g., credit scoring and criminal justice, the prediction outcomes might discriminate against people with sensitive attributes, leading to unfairness. The commonly…

We consider robust pricing and hedging for options written on multiple assets given market option prices for the individual assets. The resulting problem is called the multi-marginal martingale optimal transport problem. We propose two…

The relative arbitrage portfolio outperforms a benchmark portfolio over a given time-horizon with probability one. With market price of risk processes depending on the market portfolio and investors, this paper analyzes the multi-agent…

The stochastic multi-armed bandit has provided a framework for studying decision-making in unknown environments. We propose a variant of the stochastic multi-armed bandit where the rewards are sampled from a stochastic linear dynamical…