Related papers: Measuring distribution risk in discrete models
The vast majority of works on option pricing operate on the assumption of risk neutral valuation, and consequently focus on the expected value of option returns, and do not consider risk parameters, such as variance. We show that it is…
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…
The MDL two-part coding $ \textit{index of resolvability} $ provides a finite-sample upper bound on the statistical risk of penalized likelihood estimators over countable models. However, the bound does not apply to unpenalized maximum…
The risk premium is one of main concepts in mathematical finance. It is a measure of the trade-offs investors make between return and risk and is defined by the excess return relative to the risk-free interest rate that is earned from an…
Expanding the ideas of the author's paper 'Nonexpansive maps and option pricing theory' (Kibernetica 34:6 (1998), 713-724) we develop a pure game-theoretic approach to option pricing, by-passing stochastic modeling. Risk neutral…
We propose and axiomatize preferences on a product state space in light of uncertainty regarding the dependency of different payoff-relevant factors. Dependence structures allow to decompose probabilities and allow to pin down behavior…
We design three continuous--time models in finite horizon of a commodity price, whose dynamics can be affected by the actions of a representative risk--neutral producer and a representative risk--neutral trader. Depending on the model, the…
Set-valued risk measures on $L^p_d$ with $0 \leq p \leq \infty$ for conical market models are defined, primal and dual representation results are given. The collection of initial endowments which allow to super-hedge a multivariate claim…
Uncertainty is prevalent in engineering design, data-driven problems, and decision making broadly. Due to inherent risk-averseness and ambiguity about assumptions, it is common to address uncertainty by formulating and solving conservative…
We present a unified, market-complete model that integrates both the Bachelier and Black-Scholes-Merton frameworks for asset pricing. The model allows for the study, within a unified framework, of asset pricing in a natural world that…
For a risk vector $V$, whose components are shared among agents by some random mechanism, we obtain asymptotic lower and upper bounds for the individual agents' exposure risk and the aggregated risk in the market. Risk is measured by…
We present an arbitrage free theoretical framework for modeling bid and ask prices of dividend paying securities in a discrete time setup using theory of dynamic acceptability indices. In the first part of the paper we develop the theory of…
We focus on two particular aspects of model risk: the inability of a chosen model to fit observed market prices at a given point in time (calibration error) and the model risk due to recalibration of model parameters (in contradiction to…
We provide a constructive way of defining new elicitable risk measures that are characterised by a multiplicative scoring function. We show that depending on the choice of the scoring function's components, the resulting risk measure…
We consider two market designs for a network of prosumers, trading energy: (i) a centralized design which acts as a benchmark, and (ii) a peer-to-peer market design. High renewable energy penetration requires that the energy market design…
The left tail of the implied volatility skew, coming from quotes on out-of-the-money put options, can be thought to reflect the market's assessment of the risk of a huge drop in stock prices. We analyze how this market information can be…
In the paper a problem of risk measures on a discrete-time market model with transaction costs is studied. Strategy effectiveness and shortfall risk is introduced. This paper is a generalization of quantile hedging presented in [4].
We propose a method for extending a given asset pricing formula to account for two additional sources of risk: the risk associated with future changes in market--calibrated parameters and the remaining risk associated with idiosyncratic…
We consider call option prices in diffusion models close to expiry, in an asymptotic regime ("moderately out of the money") that interpolates between the well-studied cases of at-the-money options and out-of-the-money fixed-strike options.…
Several models for the pricing of derivative securities in illiquid markets are discussed. A typical type of nonlinear partial differential equations arising from these investigation is studied. The scaling properties of these equations are…