Related papers: Hedging in Jump Diffusion Model with Transaction C…

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…

Anomalous diffusions arise as scaling limits of continuous-time random walks (CTRWs) whose innovation times are distributed according to a power law. The impact of a non-exponential waiting time does not vanish with time and leads to…

We consider a semimartingale market model when the underlying diffusion has a singular volatility matrix and compute the hedging portfolio for a given payoff function. Recently, the representation problem for such degenerate diffusions with…

In this paper we derive an easily computed approximation to European basket call prices for a local volatility jump-diffusion model. We apply the asymptotic expansion method to find the approximate value of the lower bound of European…

This paper mainly discusses the American option's hedging strategies via binomialmodel and the basic idea of pricing and hedging American option. Although the essential scheme of hedging is almost the same as European option, small…

We suggest a simple reduction of pricing European options in affine jump-diffusion models to pricing options with modified payoffs in diffusion models. The procedure is based on the conjugation of the infinitesimal generator of the model…

A risk-neutral valuation framework is developed for pricing and hedging in-play football bets based on modelling scores by independent Poisson processes with constant intensities. The Fundamental Theorems of Asset Pricing are applied to…

It is a well known fact that local scale invariance plays a fundamental role in the theory of derivative pricing. Specific applications of this principle have been used quite often under the name of `change of numeraire', but in recent work…

We apply rough-path theory to study the discrete-time gamma-hedging strategy. We show that if a trader knows that the market price of a set of European options will be given by a diffusive pricing model, then the discrete-time gamma-hedging…

Financial derivatives pricing aims to find the fair value of a financial contract on an underlying asset. Here we consider option pricing in the partial differential equations framework. The contemporary models lead to one-dimensional or…

We consider the classical problem of maximizing the expected utility of terminal net wealth with a final random liability in a simple jump-diffusion model. In the spirit of Horst et al. (2014) and Santacroce-Trivellato (2014), under…

We investigate the problem of pricing and hedging derivatives of Electricity Futures contract when the underlying asset is not available. We propose to use a cross hedging strategy based on the Futures contract covering the larger delivery…

Deep hedging (Buehler et al. 2019) is a versatile framework to compute the optimal hedging strategy of derivatives in incomplete markets. However, this optimal strategy is hard to train due to action dependence, that is, the appropriate…

A standing assumption in the literature on proportional transaction costs is efficient friction. Together with robust no free lunch with vanishing risk, it rules out strategies of infinite variation, as they usually appear in frictionless…

We study the behavior of the critical price of an American put option near maturity in the Jump diffusion model when the underlying stock pays dividends at a continuous rate and the limit of the critical price is smaller than the stock…

We study how trading costs are reflected in equilibrium returns. To this end, we develop a tractable continuous-time risk-sharing model, where heterogeneous mean-variance investors trade subject to a quadratic transaction cost. The…

Derivatives, as a critical class of financial instruments, isolate and trade the price attributes of risk assets such as stocks, commodities, and indices, aiding risk management and enhancing market efficiency. However, traditional hedging…

We consider a model of linear market impact, and address the problem of replicating a contingent claim in this framework. We derive a non-linear Black-Scholes Equation that provides an exact replication strategy. This equation is fully…

We study the problem of option pricing and hedging strategies within the frame-work of risk-return arguments. An economic agent is described by a utility function that depends on profit (an expected value) and risk (a variance). In the…

We investigate the pricing of cliquet options in a jump-diffusion model. The considered option is of monthly sum cap style while the underlying stock price model is driven by a drifted L\'{e}vy process entailing a Brownian diffusion…