Related papers: Hedging in Sequential Experiments
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,…
This work focuses on the dynamic hedging of financial derivatives, where a reinforcement learning algorithm is designed to minimize the variance of the delta hedging process. In contrast to previous research in this area, we apply…
The literature on dynamic discrete games often assumes that the conditional choice probabilities and the state transition probabilities are homogeneous across markets and over time. We refer to this as the "homogeneity assumption" in…
In this paper, we take up the analysis of a principal/agent model with moral hazard introduced in [17], with optimal contracting between competitive investors and an impatient bank monitoring a pool of long-term loans subject to Markovian…
To promote economic stability, finance should be studied as a hard science, where scientific methods apply. When a trading strategy is proposed, the underlying model should be transparent and defined robustly to allow other researchers to…
The classic model of computable randomness considers martingales that take real or rational values. Recent work by Bienvenu et al. (2012) and Teutsch (2014) shows that fundamental features of the classic model change when the martingales…
We consider the problem of hedging a European interest rate contingent claim with a portfolio of zero-coupon bonds and show that an HJM type Markovian model driven by an infinite number of sources of randomness does not have some of the…
We investigate the transient and steady-state dynamics of the Bennati-Dragulescu-Yakovenko money game in the presence of probabilistic cheaters, who can misrepresent their financial status by claiming to have no money. We derive the…
In this paper, we investigate the ruin probabilities of non-homogeneous risk models. By employing martingale method, the Lundberg-type inequalities of ruin probabilities of non-homogeneous renewal risk models are obtained under weak…
We study a notion of good-deal hedging, that corresponds to good-deal valuation for generalized good-deal constraints. Under model uncertainty about the market prices of risk of hedging assets, a robust approach leads to a reduction or even…
This paper examines replication portfolio construction in incomplete markets - a key problem in financial engineering with applications in pricing, hedging, balance sheet management, and energy storage planning. We model this as a…
We show how to price and replicate a variety of barrier-style claims written on the $\log$ price $X$ and quadratic variation $\langle X \rangle$ of a risky asset. Our framework assumes no arbitrage, frictionless markets and zero interest…
We pursue robust approach to pricing and hedging in mathematical finance. We consider a continuous time setting in which some underlying assets and options, with continuous paths, are available for dynamic trading and a further set of…
We revisit mean-risk portfolio selection in a one-period financial market where risk is quantified by a positively homogeneous risk measure $\rho$. We first show that under mild assumptions, the set of optimal portfolios for a fixed return…
Hypothesis tests under order restrictions arise in a wide range of scientific applications. By exploiting inequality constraints, such tests can achieve substantial gains in power and interpretability. However, these gains come at a cost:…
We study a strategic experimentation game with exponential bandits, in which experiment outcomes are private. The equilibrium amount of experimentation is always higher than in the benchmark case where experiment outcomes are publicly…
Markowitz's optimal portfolio relies on the accurate estimation of correlations between asset returns, a difficult problem when the number of observations is not much larger than the number of assets. Using powerful results from random…
We consider robust pricing and hedging for options written on multiple assets given market option prices for the individual assets. The resulting problem is called the multi-marginal martingale optimal transport problem. We propose two…
Consider an American option that pays G(X^*_t) when exercised at time t, where G is a positive increasing function, X^*_t := \sup_{s\le t}X_s, and X_s is the price of the underlying security at time s. Assuming zero interest rates, we show…
This paper studies the question of filtering and maximizing terminal wealth from expected utility in a partially information stochastic volatility models. The special features is that the only information available to the investor is the…