Related papers: Is the difference between deep hedging and delta h…
We propose different schemes for option hedging when asset returns are modeled using a general class of GARCH models. More specifically, we implement local risk minimization and a minimum variance hedge approximation based on an extended…
Biological organisms have to cope with stochastic variations in both the external environment and the internal population dynamics. Theoretical studies and laboratory experiments suggest that population diversification could be an effective…
Financial and gambling markets are ostensibly similar and hence strategies from one could potentially be applied to the other. Financial markets have been extensively studied, resulting in numerous theorems and models, while gambling…
Risk statistic is a critical factor not only for risk analysis but also for financial application. However, the traditional risk statistics may fail to describe the characteristics of regulator-based risk. In this paper, we consider the…
The consideration of predictive uncertainty in medical imaging with deep learning is of utmost importance. We apply estimation of both aleatoric and epistemic uncertainty by variational Bayesian inference with Monte Carlo dropout to…
Duality for robust hedging with proportional transaction costs of path dependent European options is obtained in a discrete time financial market with one risky asset. Investor's portfolio consists of a dynamically traded stock and a static…
Shorting for hedging exposes to risk when the market dynamics is uncertain. Managing uncertainty and risk exposure is key in portfolio management practice. This paper develops a robust framework for dynamic minimum-variance hedging that…
The article is devoted to investigating the application of hedging strategies to online expert weight allocation under delayed feedback. As the main result, we develop the General Hedging algorithm $\mathcal{G}$ based on the exponential…
The delta method is a popular and elementary tool for deriving limiting distributions of transformed statistics, while applications of asymptotic distributions do not allow one to obtain desirable accuracy of approximation for tail…
What is the demand elasticity of statistical arbitrageurs that invest according to the advice of modern cross-sectional asset pricing models? Thirteen models from the literature exhibit strikingly inelastic demand, in contrast to classical…
In Electricity markets, illiquidity, transaction costs and market price characteristics prevent managers to replicate exactly contracts. A residual risk is always present and the hedging strategy depends on a risk criterion chosen. We…
The inclusion of DVA in the fair-value of derivative transactions has now become standard accounting practice in most parts of the world. Furthermore, some sophisticated banks are including an FVA (Funding Valuation Adjustment), but since…
The Black-Scholes option pricing model remains a cornerstone in financial mathematics, yet its application is often challenged by the need for accurate hedging strategies, especially in dynamic market environments. This paper presents a…
We investigate pricing-hedging duality for American options in discrete time financial models where some assets are traded dynamically and others, e.g. a family of European options, only statically. In the first part of the paper we…
Data scientists and statisticians are often at odds when determining the best approach, machine learning or statistical modeling, to solve an analytics challenge. However, machine learning and statistical modeling are more cousins than…
In this paper we investigate discrete time trading under integer constraints, that is, we assume that the offered goods or shares are traded in integer quantities instead of the usual real quantity assumption. For finite probability spaces…
We study hedging and pricing of unattainable contingent claims in a non-Markovian regime-switching financial model. Our financial market consists of a bank account and a risky asset whose dynamics are driven by a Brownian motion and a…
We revisit optimal execution of an active portfolio in the presence of slippage (aka linear, proportional, or absolute-value) costs. Market efficiency implies a close balance between active alphas and trading costs, so even small changes to…
This study derives the expected liquidity cost when performing the delta hedging process of a European option. This cost is represented by an integration formula that includes European option prices and a certain function depending on the…
We propose a flexible framework for hedging a contingent claim by holding static positions in vanilla European calls, puts, bonds, and forwards. A model-free expression is derived for the optimal static hedging strategy that minimizes the…