Related papers: Arbitrage risk induced by transaction costs
A blockchain replaces central counterparties with time-consuming consensus protocols to record the transfer of ownership. This settlement latency slows cross-exchange trading, exposing arbitrageurs to price risk. Off-chain settlement,…
Quantum computation holds promise for the solution of many intractable problems. However, since many quantum algorithms are stochastic in nature they can only find the solution of hard problems probabilistically. Thus the efficiency of the…
In this work, we identify the most general measure of arbitrage for any market model governed by It\^o processes. We show that our arbitrage measure is invariant under changes of num\'{e}raire and equivalent probability. Moreover, such…
In recent years, quantum computation has been rapidly advancing, driving a technological revolution with significant potential across various sectors, particularly in finance. Despite this, the insurance industry, an essential tool for…
This paper investigates the experimental performance of a discrete portfolio optimization problem relevant to the financial services industry on the gate-model of quantum computing. We implement and evaluate a portfolio rebalancing use case…
This article introduces the notion of arbitrage for a situation involving a collection of investments and a payoff matrix describing the return to an investor of each investment under each of a set of possible scenarios. We explain the…
Quantum games, like quantum algorithms, exploit quantum entanglement to establish strong correlations between strategic player actions. This paper introduces quantum game-theoretic models applied to trading and demonstrates their…
Within the well-known framework of financial portfolio optimization, we analyze the existing relationships between the condition of arbitrage and the utility maximization in presence of \emph{insider information}. We assume that, since the…
Financial volatility risk and its relation to a business cycle-related intrinsic time is addressed through a multiple round evolutionary quantum game equilibrium leading to turbulence and multifractal signatures in the financial returns and…
Finance is one of the promising field for industrial application of quantum computing. In particular, quantum algorithms for calculation of risk measures such as the value at risk and the conditional value at risk of a credit portfolio have…
We propose a method for extending a given asset pricing formula to account for two additional sources of risk: the risk associated with future changes in market--calibrated parameters and the remaining risk associated with idiosyncratic…
In a discrete-time setting, we study arbitrage concepts in the presence of convex trading constraints. We show that solvability of portfolio optimization problems is equivalent to absence of arbitrage of the first kind, a condition weaker…
In this note we consider the maximization of the expected terminal wealth for the setup of quadratic transaction costs. First, we provide a very simple probabilistic solution to the problem. Although the problem was largely studied, as far…
Assuming frictionless trading, classical stochastic portfolio theory (SPT) provides relative arbitrage strategies. However, the costs associated with real-world execution are state-dependent, volatile, and under increasing stress during…
American options are studied in a general discrete market in the presence of proportional transaction costs, modelled as bid-ask spreads. Pricing algorithms and constructions of hedging strategies, stopping times and martingale…
We propose a mathematical model of momentum risk-taking, which is essentially real-time risk management focused on short-term volatility of stock markets. Its implementation, our fully automated momentum equity trading system presented…
We introduce a neural network approach for assessing the risk of a portfolio of assets and liabilities over a given time period. This requires a conditional valuation of the portfolio given the state of the world at a later time, a problem…
Currency arbitrage capitalizes on price discrepancies in currency exchange rates between markets to produce profits with minimal risk. By employing a combinatorial optimization problem, one can ascertain optimal paths within directed…
We consider an infinite dimensional optimization problem motivated by mathematical economics. Within the celebrated "Arbitrage Pricing Model", we use probabilistic and functional analytic techniques to show the existence of optimal…
In this paper we consider a discrete-time risk sensitive portfolio optimization over a long time horizon with proportional transaction costs. We show that within the log-return i.i.d. framework the solution to a suitable Bellman equation…