Related papers: Hedging in Jump Diffusion Model with Transaction C…
The Black-Scholes theory of option pricing has been considered for many years as an important but very approximate zeroth-order description of actual market behavior. We generalize the functional form of the diffusion of these systems and…
The pricing, hedging, optimal exercise and optimal cancellation of game or Israeli options are considered in a multi-currency model with proportional transaction costs. Efficient constructions for optimal hedging, cancellation and exercise…
In this short paper, in order to price occupation-time options, such as (double-barrier) step options and quantile options, we derive various joint distributions of a mixed-exponential jump-diffusion process and its occupation times of…
We introduce a simple model of diffusive jump process where a fee is charged for each jump. The nonlinear cost function is such that slow jumps incur a flat fee, while for fast jumps the cost is proportional to the velocity of the jump. The…
We train neural networks to learn optimal replication strategies for an option when two replicating instruments are available, namely the underlying and a hedging option. If the price of the hedging option matches that of the Black--Scholes…
We use standard physics techniques to model trading and price formation in a market under the assumption that order arrival and cancellations are Poisson random processes. This model makes testable predictions for the most basic properties…
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 consider the hedging error of a derivative due to discrete trading in the presence of a drift in the dynamics of the underlying asset. We suppose that the trader wishes to find rebalancing times for the hedging portfolio which enable him…
There is a well developed framework, the Black-Scholes theory, for the pricing of contracts based on the future prices of certain assets, called options. This theory assumes that the probability distribution of the returns of the underlying…
Path integral techniques for the pricing of financial options are mostly based on models that can be recast in terms of a Fokker-Planck differential equation and that, consequently, neglect jumps and only describe drift and diffusion. We…
In this paper we introduce a deep learning method for pricing and hedging American-style options. It first computes a candidate optimal stopping policy. From there it derives a lower bound for the price. Then it calculates an upper bound, a…
Sustaining efficiency and stability by properly controlling the equity to asset ratio is one of the most important and difficult challenges in bank management. Due to unexpected and abrupt decline of asset values, a bank must closely…
We investigate a statistical-static hedging technique for pricing assets considered as single-step stochastic cash flows. The valuation is based on constructing in a canonical way a European style derivative on a benchmark security such…
This paper develops a novel analytically tractable Neumann series of Bessel functions representation for pricing (and hedging) European-style double barrier knock-out options, which can be applied to the whole class of one-dimensional…
In the option valuation literature, the shortcomings of one factor stochastic volatility models have traditionally been addressed by adding jumps to the stock price process. An alternate approach in the context of option pricing and…
This article investigates a regime-switching investment strategy aimed at mitigating downside risk by reducing market exposure during anticipated unfavorable market regimes. We highlight the statistical jump model (JM) for market regime…
This paper investigates the optimal retirement decision, investment, and consumption strategies in a market with jump diffusion, taking into account habit persistence and stock-wage correlation. Our analysis considers multiple stocks and a…
We construct a sequence of functions that uniformly converge (on compact sets) to the price of Asian option, which is written on a stock whose dynamics follows a jump diffusion, exponentially fast. Each of the element in this sequence…
A risk-averse agent hedges her exposure to a non-tradable risk factor $U$ using a correlated traded asset $S$ and accounts for the impact of her trades on both factors. The effect of the agent's trades on $U$ is referred to as cross-impact.…
We study continuous-time reinforcement learning (RL) for stochastic control in which system dynamics are governed by jump-diffusion processes. We formulate an entropy-regularized exploratory control problem with stochastic policies to…