Related papers: Arbitrage risk induced by transaction costs
The problem of hedging and pricing sequences of contingent claims in large financial markets is studied. Connection between asymptotic arbitrage and behavior of the $\alpha$~-~quantile price is shown. The large Black-Scholes model is…
This paper considers the optimal portfolio selection problem in a dynamic multi-period stochastic framework with regime switching. The risk preferences are of exponential (CARA) type with an absolute coefficient of risk aversion which…
This paper examines the implementation of a statistical arbitrage trading strategy based on co-integration relationships where we discover candidate portfolios using multiple factors rather than just price data. The portfolio selection…
When simulating the time evolution of quantum many-body systems on a digital quantum computer, one faces the challenges of quantum noise and of the Trotter error due to time discretization. The Trotter error in integrable spin chains can be…
Entanglement has been termed a critical resource for quantum information processing and is thought to be the reason that certain quantum algorithms, such as Shor's factoring algorithm, can achieve exponentially better performance than their…
Game (Israeli) options in a multi-asset market model with proportional transaction costs are studied in the case when the buyer is allowed to exercise the option and the seller has the right to cancel the option gradually at a mixed (or…
Speculative trading can drive pronounced market instabilities, yet existing regulatory and macroprudential tools intervene only after such dynamics emerge. Quantum technologies offer a fundamentally new means of shaping economic behavior by…
We survey classical and recent developments in numerical linear algebra, focusing on two issues: computational complexity, or arithmetic costs, and numerical stability, or performance under roundoff error. We present a brief account of the…
This note develops an arbitrage theory for a discrete-time market model without the assumption of the existence of a num\'eraire asset. Fundamental theorems of asset pricing are stated and proven in this context. The distinction between the…
The pricing, hedging, optimal exercise and optimal cancellation of game or Israeli options are considered in a multi-currency model with proportional transaction costs. Efficient constructions for optimal hedging, cancellation and exercise…
We introduce and study online conversion with switching costs, a family of online problems that capture emerging problems at the intersection of energy and sustainability. In this problem, an online player attempts to purchase…
The capitalization-weighted total relative variation $\sum_{i=1}^d \int_0^\cdot \mu_i (t) \mathrm{d} \langle \log \mu_i \rangle (t)$ in an equity market consisting of a fixed number $d$ of assets with capitalization weights $\mu_i (\cdot)$…
This paper develops a comprehensive theoretical framework that imports concepts from stochastic thermodynamics to model price impact and characterize the feasibility of round-trip arbitrage in financial markets. A trading cycle is treated…
In practice daily volatility of portfolio returns is transformed to longer holding periods by multiplying by the square-root of time which assumes that returns are not serially correlated. Under this assumption this procedure of scaling can…
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…
Recent development in quantum computation and quantum information theory allows to extend the scope of game theory for the quantum world. The authors have recently proposed a quantum description of financial market in terms of quantum game…
One might think that, once we know something is computable, how efficiently it can be computed is a practical question with little further philosophical importance. In this essay, I offer a detailed case that one would be wrong. In…
Portfolio optimisation typically aims to provide an optimal allocation that minimises risk, at a given return target, by diversifying over different investments. However, the potential scope of such risk diversification can be limited if…
Portfolio optimisation is essential in quantitative investing, but its implementation faces several practical difficulties. One particular challenge is converting optimal portfolio weights into real-life trades in the presence of realistic…
Economic theory has provided an estimable intuition in understanding the perplexing ideologies in law, in the areas of economic law, tort law, contract law, procedural law and many others. Most legal systems require the parties involved in…