Related papers: Amortizing Perpetual Options
The purpose of this work is to explore the role that arbitrage opportunities play in pricing financial derivatives. We use a non-equilibrium model to set up a stochastic portfolio, and for the random arbitrage return, we choose a stationary…
A stochastic model for pure-jump diffusion (the compound renewal process) can be used as a zero-order approximation and as a phenomenological description of tick-by-tick price fluctuations. This leads to an exact and explicit general…
We describe the pricing and hedging of financial options without the use of probability using rough paths. By encoding the volatility of assets in an enhancement of the price trajectory, we give a pathwise presentation of the replication of…
Valuation and parity formulas for both European-style and American-style exchange options are presented in a general financial model allowing for jumps, possibility of default and "bubbles" in asset prices. The formulas are given via…
We consider the problem of valuation of American options written on dividend-paying assets whose price dynamics follows a multidimensional exponential Levy model. We carefully examine the relation between the option prices, related partial…
We consider call option prices in diffusion models close to expiry, in an asymptotic regime ("moderately out of the money") that interpolates between the well-studied cases of at-the-money options and out-of-the-money fixed-strike options.…
The behaviour of a space-modulated, so-called "argumental" oscillator is studied, which is represented by a model having an even-parity space-modulating function. Analytic expressions of a stability criterion and of discrete energy levels…
Decentralized exchanges are widely used platforms for trading crypto assets. The most common types work with automated market makers (AMM), allowing traders to exchange assets without needing to find matching counterparties. Thereby,…
We introduce a new class of automata on infinite trees called \emph{alternating nonzero automata}, which extends the class of non-deterministic nonzero automata. We reduce the emptiness problem for alternating nonzero automata to the same…
This paper studies arbitrage pricing theory in financial markets with implicit transaction costs. We extend the existing theory to include the more realistic possibility that the price at which the investors trade is dependent on the traded…
We consider a financial model with permanent price impact. Continuous time trading dynamics are derived as the limit of discrete rebalancing policies. We then study the problem of super-hedging a European option. Our main result is the…
Valuation adjustments are nowadays a common practice to include credit and liquidity effects in option pricing. Funding costs arising from collateral procedures, hedging strategies and taxes are added to option prices to take into account…
This paper studies the valuation of a class of default swaps with the embedded option to switch to a different premium and notional principal anytime prior to a credit event. These are early exercisable contracts that give the protection…
An automated market maker (AMM) is a state machine that manages pools of assets, allowing parties to buy and sell those assets according to a fixed mathematical formula. AMMs are typically implemented as smart contracts on blockchains, and…
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…
In this paper, we give a new approximate dynamic programming (ADP) method to solve large-scale Markov decision programming (MDP) problem. In comparison with many classic ADP methods which have large number of constraints, we formulate an…
We propose Frictive Policy Optimization (FPO), a framework for learning language model policies that regulate not only what to say, but when and how to intervene in order to manage epistemic and normative risk. Unlike standard alignment…
Automated market makers (AMMs) are smart contracts that automatically trade electronic assets according to a mathematical formula. This paper investigates how an AMM's formula affects the interests of liquidity providers, who endow the AMM…
The robust option pricing problem is to find upper and lower bounds on fair prices of financial claims using only the most minimal assumptions. It contrasts with the classical, model-based approach and gained prominence in the wake of the…
Offline preference optimization methods are efficient for large language models (LLMs) alignment. Direct Preference optimization (DPO)-like learning, one of the most popular approaches, stands out for its efficiency in reward modeling.…