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Automated marker makers (AMMs) are a class of decentralized exchanges that enable the automated trading of digital assets. They accept deposits of digital tokens from liquidity providers (LPs); tokens can be used by traders to execute…
We consider a class of generalized capital asset pricing models in continuous time with a finite number of agents and tradable securities. The securities may not be sufficient to span all sources of uncertainty. If the agents have…
All the financial practitioners are working in incomplete markets full of unhedgeable risk-factors. Making the situation worse, they are only equipped with the imperfect information on the relevant processes. In addition to the market risk,…
We develop robust pricing and hedging of a weighted variance swap when market prices for a finite number of co--maturing put options are given. We assume the given prices do not admit arbitrage and deduce no-arbitrage bounds on the weighted…
Asset liquidity in modern financial markets is a key but elusive concept. A market is often said to be liquid when the prevailing structure of transactions provides a prompt and secure link between the demand and supply of assets, thus…
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…
In this paper we propose a general framework for modeling an insurance liability cash flow in continuous time, by generalizing the reduced-form framework for credit risk and life insurance. In particular, we assume a nontrivial dependence…
Most finance studies are discussed on the basis of several hypotheses, for example, investors rationally optimize their investment strategies. However, the hypotheses themselves are sometimes criticized. Market impacts, where trades of…
We consider derivatives written on multiple underlyings in a one-period financial market, and we are interested in the computation of model-free upper and lower bounds for their arbitrage-free prices. We work in a completely realistic…
Electricity market mechanisms designed to steer sustainable generation of electricity play an important role for the energy transition intended to mitigate climate change. One of the major problems is to complement volatile renewable energy…
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,…
We study the problem of option pricing and hedging strategies within the frame-work of risk-return arguments. An economic agent is described by a utility function that depends on profit (an expected value) and risk (a variance). In the…
Automated market makers (AMMs) are smart contracts that automatically trade electronic assets according to a mathematical formula. This paper investigates how an AMM's formula affects the interests of liquidity providers, who endow the AMM…
We study superhedging of contingent claims with physical delivery in a discrete-time market model with convex transaction costs. Our model extends Kabanov's currency market model by allowing for nonlinear illiquidity effects. We show that…
We study an American option pricing problem with liquidity risks and transaction fees. As endogenous transaction costs, liquidity risks of the underlying asset are modeled by a mean-reverting process. Transaction fees are exogenous…
Concentrated liquidity (CL) provisioning is a way how to improve the capital efficiency of Automated Market Makers (AMM). Allowing liquidity providers to use leverage is a step towards even higher capital efficiency. A number of…
In a continuous-time model with multiple assets described by c\`{a}dl\`{a}g processes, this paper characterizes superhedging prices, absence of arbitrage, and utility maximizing strategies, under general frictions that make execution prices…
We analyze the efficiency of markets with friction, particularly power markets. We model the market as a dynamic system with $(d_t;\,t\geq 0)$ the demand process and $(s_t;\,t\geq 0)$ the supply process. Using stochastic differential…
We present an analysis of the price impact associated with trades effected by different financial firms. Using data from the Spanish Stock Market, we find a high degree of heterogeneity across different market members, both in the…
Efficient risk transfer is an important condition for ensuring the sustainability of a market according to the established economics literature. In an inefficient market, significant financial imbalances may develop and potentially…