Related papers: Arbitrage risk induced by transaction costs
We consider the problem of option hedging in a market with proportional transaction costs. Since super-replication is very costly in such markets, we replace perfect hedging with an expected loss constraint. Asymptotic analysis for small…
Perturbation theory is an important technique for reducing computational cost and providing physical insights in simulating quantum systems with classical computers. Here, we provide a quantum algorithm to obtain perturbative energies on…
In a continuous-time model with multiple assets described by c\`{a}dl\`{a}g processes, this paper characterizes superhedging prices, absence of arbitrage, and utility maximizing strategies, under general frictions that make execution prices…
We apply numerical dynamic programming techniques to solve discrete-time multi-asset dynamic portfolio optimization problems with proportional transaction costs and shorting/borrowing constraints. Examples include problems with multiple…
Financial derivative pricing is a significant challenge in finance, involving the valuation of instruments like options based on underlying assets. While some cases have simple solutions, many require complex classical computational methods…
We recently presented a methodology for quantitatively reducing the risk and cost of executing electronic transactions in a bursty network environment such as the Internet. In the language of portfolio theory, time to complete a transaction…
We consider a conditional factor model for a multivariate portfolio of United States equities in the context of analysing a statistical arbitrage trading strategy. A state space framework underlies the factor model whereby asset returns are…
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…
Computational complexity theory contains a corpus of theorems and conjectures regarding the time a Turing machine will need to solve certain types of problems as a function of the input size. Nature {\em need not} be a Turing machine and,…
We study risk-sharing economies where heterogenous agents trade subject to quadratic transaction costs. The corresponding equilibrium asset prices and trading strategies are characterised by a system of nonlinear, fully-coupled…
This paper presents a stochastic model for discrete-time trading in financial markets where trading costs are given by convex cost functions and portfolios are constrained by convex sets. The model does not assume the existence of a cash…
Recent development in quantum computation and quantum information theory allows to extend the scope of game theory for the quantum world. The paper presents the history, basic ideas and recent development in quantum game theory. In this…
A derivative is a financial security whose value is a function of underlying traded assets and market outcomes. Pricing a financial derivative involves setting up a market model, finding a martingale (``fair game") probability measure for…
Much research in systemic risk is focused on default contagion. While this demands an understanding of valuation, fewer articles specifically deal with the existence, the uniqueness, and the computation of equilibrium prices in structural…
Computational chemistry is an essential tool in the pharmaceutical industry. Quantum computing is a fast evolving technology that promises to completely shift the computational capabilities in many areas of chemical research by bringing…
Pricing a multi-asset derivative is an important problem in financial engineering, both theoretically and practically. Although it is suitable to numerically solve partial differential equations to calculate the prices of certain types of…
Transaction costs play a critical role in asset allocation and consumption strategies in portfolio management. We apply the methods of dynamic programming and singular perturbation expansion to derive the closed-form leading solutions to…
The purpose of this work is to explore the role that random 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…
We extend the QLBS model by reformulating via considering a large trader whose transactions leave a permanent impact on the evolution of the exchange rate process and therefore affect the price of contingent claims on such processes.…
Risk assessment and in particular derivatives pricing is one of the core areas in computational finance and accounts for a sizeable fraction of the global computing resources of the financial industry. We outline a quantum-inspired…