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We derive the arbitrage gains or, equivalently, Loss Versus Rebalancing (LVR) for arbitrage between \textit{two imperfectly liquid} markets, extending prior work that assumes the existence of an infinitely liquid reference market. Our…
In his stimulating article on the reasons for two puzzling observations about the behaviour of interest rates, exchange rates and the rate of inflation, Charles Engel (2016) puts forward an explanation that rests on the concept of a…
This paper demonstrates the usefulness and importance of the concept of honest times to financial modeling. It studies a financial market with asset prices that follow jump-diffusions with negative jumps. The central building block of the…
Crowding is widely regarded as one of the most important risk factors in designing portfolio strategies. In this paper, we analyze stock crowding using network analysis of fund holdings, which is used to compute crowding scores for stocks.…
A continuous-time financial portfolio selection model with expected utility maximization typically boils down to solving a (static) convex stochastic optimization problem in terms of the terminal wealth, with a budget constraint. In…
We study the feasibility, profitability, and prevalence of sandwich attacks on Ethereum rollups with private mempools. First, we extend a formal model of optimal front- and back-run sizing, relating attack profitability to victim trade…
We study Python's lunch geometries in the two-dimensional Jackiw-Teitelboim model coupled to a massless scalar field in the semiclassical limit. We show that all extrema including the minimal quantum extremal surface, bulges and appetizers…
Empirical evidence shows that wealthy households have substantially higher saving rates and markedly lower marginal propensity to consume (MPC) than other groups. Existing theory cannot account for this pattern unless under restrictive…
We consider an investor who wants to hedge a path-dependent option with maturity $T$ using a static hedging portfolio using cash, the underlying, and vanilla put/call options on the same underlying with maturity $ t_1$, where $0 < t_1 < T$.…
We consider the pricing and hedging of counterparty credit risk and funding when there is no possibility to hedge the jump to default of either the bank or the counterparty. This represents the situation which is most often encountered in…
The goal of this work is to study binary market models with transaction costs, and to characterize their arbitrage opportunities. It has been already shown that the absence of arbitrage is related to the existence of \lambda-consistent…
Zero-Liquidation loans allow DeFi users to borrow USDC against their ETH holdings, but without the risk of being liquidated in case of LTV shortfalls. This is achieved by giving users the option to repay their loans, either in USDC or…
We investigate whether the fee income from trades on the CFM is sufficient for the liquidity providers to hedge away the exposure to market risk. We first analyse this problem through the lens of continuous-time financial mathematics and…
Although the valuation of life contingent assets has been thoroughly investigated under the framework of mathematical statistics, little financial economics research pays attention to the pricing of these assets in a non-arbitrage, complete…
We study the optimal investment problem for a continuous time incomplete market model such that the risk-free rate, the appreciation rates and the volatility of the stocks are all random; they are assumed to be independent from the driving…
The drift burst hypothesis postulates the existence of short-lived locally explosive trends in the price paths of financial assets. The recent U.S. equity and treasury flash crashes can be viewed as two high-profile manifestations of such…
We present an arbitrage-free non-parametric yield curve prediction model which takes the full (discretized) yield curve as state variable. We believe that absence of arbitrage is an important model feature in case of highly correlated data,…
Reinforcement Learning with Verifiable Rewards (RLVR) is a powerful framework for improving the reasoning abilities of Large Language Models (LLMs). However, current methods such as GRPO rely only on problems where the model responses to…
Robust Markov decision processes (MDPs) address the challenge of model uncertainty by optimizing the worst-case performance over an uncertainty set of MDPs. In this paper, we focus on the robust average-reward MDPs under the model-free…
The two main issues for managing wrong way risk (WWR) for the credit valuation adjustment (CVA, i.e. WW-CVA) are calibration and hedging. Hence we start from a novel model-free worst-case approach based on static hedging of counterparty…