Related papers: Unifying Market Microstructure and Dynamic Asset P…
We introduce a fairly general, recombining trinomial tree model in the natural world. Market-completeness is ensured by considering a market consisting of two risky assets, a riskless asset, and a European option. The two risky assets…
We consider option pricing using replicating binomial trees, with a two fold purpose. The first is to introduce ESG valuation into option pricing. We explore this in a number of scenarios, including enhancement of yield due to trader…
We consider a multi-asset incomplete model of the financial market, where each of $m\geq 2$ risky assets follows the binomial dynamics, and no assumptions are made on the joint distribution of the risky asset price processes. We provide…
We study contingent claims in a discrete-time market model where trading costs are given by convex functions and portfolios are constrained by convex sets. In addition to classical frictionless markets and markets with transaction costs or…
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 provide a comprehensive analysis of a structural model for the dynamics of prices of assets traded in a market originally proposed in [1]. The model takes the form of an interacting generalization of the geometric Brownian…
In this paper we present a theoretical framework for determining dynamic ask and bid prices of derivatives using the theory of dynamic coherent acceptability indices in discrete time. We prove a version of the First Fundamental Theorem of…
We develop two alternate approaches to arbitrage-free, market-complete, option pricing. The first approach requires no riskless asset. We develop the general framework for this approach and illustrate it with two specific examples. The…
We consider the pricing of derivatives in a setting with trading restrictions, but without any probabilistic assumptions on the underlying model, in discrete and continuous time. In particular, we assume that European put or call options…
We consider asset price models whose dynamics are described by linear functions of the (time extended) signature of a primary underlying process, which can range from a (market-inferred) Brownian motion to a general multidimensional…
Market-based coordination of demand side assets has gained great interests in recent years. In spite of its efficiency, there is a risk that the interaction between the dynamic assets through the price signal could result in an unstable…
This paper presents a stochastic model for discrete-time trading in financial markets where trading costs are given by convex cost functions and portfolios are constrained by convex sets. The model does not assume the existence of a cash…
We reconsider the microeconomic foundations of financial economics. Motivated by the importance of Knightian Uncertainty in markets, we present a model that does not carry any probabilistic structure ex ante, yet is based on a common order.…
"Fundamental theorem of asset pricing" roughly states that absence of arbitrage opportunity in a market is equivalent to the existence of a risk-neutral probability. We give a simple counterexample to this oversimplified statement. Prices…
Existing approaches to asset-pricing under model-uncertainty adapt classical utility-maximization frameworks and seek theoretical comprehensiveness. We move toward practice by considering binary model-risks and by emphasizing 'constraints'…
We show how inter-asset dependence information derived from market prices of options can lead to improved model-free price bounds for multi-asset derivatives. Depending on the type of the traded option, we either extract correlation…
No-arbitrage asset pricing characterizes valuation through the existence of equivalent martingale measures relative to a filtration and a class of admissible trading strategies. In practice, pricing is performed across multiple asset…
A financial market model where agents trade using realistic combinations of buy-and-hold strategies is considered. Minimal assumptions are made on the discounted asset-price process - in particular, the semimartingale property is not…
We model the dynamics of asset prices and associated derivatives by consideration of the dynamics of the conditional probability density process for the value of an asset at some specified time in the future. In the case where the price…
We investigate financial markets under model risk caused by uncertain volatilities. For this purpose we consider a financial market that features volatility uncertainty. To have a mathematical consistent framework we use the notion of…