Related papers: Hedging in Sequential Experiments
Continuous-time mean-variance portfolio selection model with nonlinear wealth equations and bankruptcy prohibition is investigated by the dual method. A necessary and sufficient condition which the optimal terminal wealth satisfies is…
We propose a methodology to construct tests for the null hypothesis that the pricing errors of a panel of asset returns are jointly equal to zero in a linear factor asset pricing model -- that is, the null of "zero alpha". We consider, as a…
We consider the pricing and hedging of exotic options in a model-independent set-up using \emph{shortfall risk and quantiles}. We assume that the marginal distributions at certain times are given. This is tantamount to calibrating the model…
This paper provides a statistical method to test whether a system that performs a binary sequential hypothesis test is optimal in the sense of minimizing the average decision times while taking decisions with given reliabilities. The…
In the paper, a mean-square minimization problem under terminal wealth constraint with partial observations is studied. The problem is naturally connected to the mean-variance hedging problem under incomplete information. A new approach to…
Suppose we observe an infinite series of coin flips $X_1,X_2,\ldots$, and wish to sequentially test the null that these binary random variables are exchangeable. Nonnegative supermartingales (NSMs) are a workhorse of sequential inference,…
The question of pricing and hedging a given contingent claim has a unique solution in a complete market framework. When some incompleteness is introduced, the problem becomes however more difficult. Several approaches have been adopted in…
We examine hypothesis testing within a principal-agent framework, where a strategic agent, holding private beliefs about the effectiveness of a product, submits data to a principal who decides on approval. The principal employs a hypothesis…
A decision maker observes the evolving state of the world while constantly trying to predict the next state given the history of past states. The ability to benefit from such predictions depends not only on the ability to recognize patters…
Modern portfolio theory(MPT) addresses the problem of determining the optimum allocation of investment resources among a set of candidate assets. In the original mean-variance approach of Markowitz, volatility is taken as a proxy for risk,…
We study the optimal asset allocation problem for a fund manager whose compensation depends on the performance of her portfolio with respect to a benchmark. The objective of the manager is to maximise the expected utility of her final…
We show that coherent risk measures are ineffective in curbing the behaviour of investors with limited liability or excessive tail-risk seeking behaviour if the market admits statistical arbitrage opportunities which we term…
If a given aggregate process $S$ is a compound mixed renewal process under a probability measure $P$, we provide a characterization of all probability measures $Q$ on the domain of $P$ such that $Q$ and $P$ are progressively equivalent and…
Model risk measures consequences of choosing a model in a class of possible alternatives. We find analytical and simulated bounds for payoff functions on classes of plausible alternatives of a given discrete model. We measure the impact of…
In this paper we provide a quantitative analysis to the concept of arbitrage, that allows to deal with model uncertainty without imposing the no-arbitrage condition. In markets that admit ``small arbitrage", we can still make sense of the…
We study discounted infinitely repeated games in which players agree on a cooperative mixed action profile but, at each step, observe only the realized pure actions. This form of imperfect monitoring breaks classical trigger strategies,…
In repeated-game applications where both the collusive and non-collusive outcomes can be supported as equilibria, researchers must resolve underlying selection questions if theory will be used to understand counterfactual policies. One…
Delta hedging, which plays a crucial r\^ole in modern financial engineering, is a tracking control design for a "risk-free" management. We utilize the existence of trends in financial time series (Fliess M., Join C.: A mathematical proof of…
We consider a portfolio with call option and the corresponding underlying asset under the standard assumption that stock-market price represents a random variable with lognormal distribution. Minimizing the variance (hedging risk) of the…
We propose a deep learning approach to study the minimal variance pricing and hedging problem in an incomplete jump diffusion market. It is based upon a rigorous stochastic calculus derivation of the optimal hedging portfolio, optimal…