Related papers: Inefficiency of CFMs: hedging perspective and agen…
Models trained under assumptions in the complete market usually don't take effect in the incomplete market. This paper solves the hedging problem in incomplete market with three sources of incompleteness: risk factor, illiquidity, and…
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…
Load-serving entities which procure electricity from the wholesale electricity market to service end-users face significant quantity and price risks due to the volatile nature of electricity demand and quasi-fixed residential tariffs at…
We investigate the problem of pricing and hedging derivatives of Electricity Futures contract when the underlying asset is not available. We propose to use a cross hedging strategy based on the Futures contract covering the larger delivery…
Funding is a cost to trading desks that they see as an input. Current FVA-related literature reflects this by also taking funding costs as an input, usually constant, and always risk-neutral. However, this funding curve is the output from a…
We develop an optimal currency hedging strategy for fund managers who own foreign assets to choose the hedge tenors that maximize their FX carry returns within a liquidity risk constraint. The strategy assumes that the offshore assets are…
Prediction markets allow traders to bet on potential future outcomes. These markets exist for weather, political, sports, and economic forecasting. Within this work we consider a decentralized framework for prediction markets using…
Hedge fund managers with the first-loss scheme charge a management fee, a performance fee and guarantee to cover a certain amount of investors' potential losses. We study how parties can choose a mutually preferred first-loss scheme in a…
This paper develops a robust mathematical framework for Constant Function Market Makers (CFMMs) by transitioning from traditional token reserve analyses to a coordinate system defined by price and intrinsic liquidity. We establish a…
In an incomplete semimartingale model of a financial market, we consider several risk-averse financial agents who negotiate the price of a bundle of contingent claims. Assuming that the agents' risk preferences are modelled by convex…
We apply the concepts of utility based pricing and hedging of derivatives in stochastic volatility markets and introduce a new class of "reciprocal affine" models for which the indifference price and optimal hedge portfolio for pure…
We consider a discrete-time model of a financial market where a risky asset is bought and sold with transactions having a transient price impact. It is shown that the corresponding utility maximization problem admits a solution. We manage…
Since they were authorized by the U.S. Security and Exchange Commission in 1998, electronic exchanges have boomed, and by 2010 high frequency trading accounted for over 70% of equity trades in the US. Such markets are thought to increase…
Variable annuities, as a class of retirement income products, allow equity market exposure for a policyholder's retirement fund with electable additional guarantees to limit the downside risk of the market. Management fees and guarantee…
We assess the market risk of the DeFi lending protocols using a multi-asset agent-based model to simulate ensembles of users subject to price-driven liquidation risk. Our multi-asset methodology shows that the protocol's systemic risk is…
Automated recommendations can nowadays be found on many e-commerce platforms, and such recommendations can create substantial value for consumers and providers. Often, however, not all recommendable items have the same profit margin, and…
We consider the social welfare that can be facilitated by a constant function market maker (CFMM). When there is sufficient liquidity available to the CFMM, it can approximate the optimal social welfare when all users transactions are…
Everlasting options, a relatively new class of perpetual financial derivatives, have emerged to tackle the challenges of rolling contracts and liquidity fragmentation in decentralized finance markets. This paper offers an in-depth analysis…
We revisit optimal execution of an active portfolio in the presence of slippage (aka linear, proportional, or absolute-value) costs. Market efficiency implies a close balance between active alphas and trading costs, so even small changes to…
Addressing the ongoing examination of high-frequency trading practices in financial markets, we report the results of an extensive empirical study estimating the maximum possible profitability of the most aggressive such practices, and…