Related papers: Benchmark-Neutral Pricing
This study presents a deep reinforcement learning approach for global hedging of long-term financial derivatives. A similar setup as in Coleman et al. (2007) is considered with the risk management of lookback options embedded in guarantees…
This paper presents a new model for options pricing. The Black-Scholes-Merton (BSM) model plays an important role in financial options pricing. However, the BSM model assumes that the risk-free interest rate, volatility, and equity premium…
In this paper we describe how to include funding and margining costs into a risk-neutral pricing framework for counterparty credit risk. We consider realistic settings and we include in our models the common market practices suggested by…
Providing a measure of market risk is an important issue for investors and financial institutions. However, the existing models for this purpose are per definition symmetric. The current paper introduces an asymmetric capital asset pricing…
This paper studies a valuation framework for financial contracts subject to reference and counterparty default risks with collateralization requirement. We propose a fixed point approach to analyze the mark-to-market contract value with…
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…
This paper formulates a model of utility for a continuous time framework that captures the decision-maker's concern with ambiguity about both volatility and drift. Corresponding extensions of some basic results in asset pricing theory are…
As operators acting on the undetermined final settlement of a derivative security, expectation is linear but price is non-linear. When the market of underlying securities is incomplete, non-linearity emerges from the bid-offer around the…
In this paper, we prove the global risk optimality of the hedging strategy of contingent claim, which is explicitly (or called semi-explicitly) constructed for an incomplete financial market with external risk factors of non-Gaussian…
The general method is proposed for constructing a family of martingale measures for a wide class of evolution of risky assets. The sufficient conditions are formulated for the evolution of risky assets under which the family of equivalent…
We find the variance-optimal equivalent martingale measure when multivariate assets are modeled by a regime-switching geometric Brownian motion, and the regimes are represented by a homogeneous continuous time Markov chain. Under this new…
This article examines neural network-based approximations for the superhedging price process of a contingent claim in a discrete time market model. First we prove that the $\alpha$-quantile hedging price converges to the superhedging price…
In this paper, we combine modern portfolio theory and option pricing theory so that a trader who takes a position in a European option contract and the underlying assets can construct an optimal portfolio such that at the moment of the…
Convergence (virtual) bidding is an important part of two-settlement electric power markets as it can effectively reduce discrepancies between the day-ahead and real-time markets. Consequently, there is extensive research into the bidding…
Current approaches to fair valuation in insurance often follow a two-step approach, combining quadratic hedging with application of a risk measure on the residual liability, to obtain a cost-of-capital margin. In such approaches, the…
The target of this paper is to consider model the risky asset price on the financial market under the Knightian uncertainty, and pricing the ask and bid prices of the uncertain risk. We use the nonlinear analysis tool, i.e., G-frame work…
In this paper, we study the exponential utility indifference pricing of pure endowment policies within a stochastic-factor model for an insurer who also invests in a financial market. Our framework incorporates a hazard rate modeled as an…
Modern market management systems continue to evolve due to the intentions to improve system security and reliability. This evolvement has been leading to a transition of market auction models from a deterministic structure with…
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…
In this paper we study mean-variance hedging under the G-expectation framework. Our analysis is carried out by exploiting the G-martingale representation theorem and the related probabilistic tools, in a contin- uous financial market with…