Related papers: Risk-return arguments applied to options with trad…
This study provides a formal analysis of the customer targeting problem when the cost for a marketing action depends on the customer response and proposes a framework to estimate the decision variables for campaign profit optimization.…
In this paper, we determine a representative agent model based on risk-neutral information. The main idea is that the pricing kernel is transition independent, which is supported by the well-known capital asset pricing theory. Determining…
The valuation process that economic agents undergo for investments with uncertain payoff typically depends on their statistical views on possible future outcomes, their attitudes toward risk, and, of course, the payoff structure itself.…
This paper studies the optimal investment problem with random endowment in an inventory-based price impact model with competitive market makers. Our goal is to analyze how price impact affects optimal policies, as well as both pricing rules…
In economic theory, an agent chooses from available alternatives -- modeled as a set. In decisions in the field or in the lab, however, agents do not have access to the set of alternatives at once. Instead, alternatives are represented by…
An investor trades a safe and several risky assets with linear price impact to maximize expected utility from terminal wealth. In the limit for small impact costs, we explicitly determine the optimal policy and welfare, in a general…
In this work we study the individual strategies carried out by agents undergoing transactions in wealth exchange models. We analyze the role of risk propensity in the behavior of the agents and find a critical risk, such that agents with…
Any firm whose business strategy has an exposure constraint that limits its potential gain naturally considers expansion, as this can increase its exposure. We model business expansion as an enlargement of the opportunity set for business…
The problem of determining the European-style option price in the incomplete market has been examined within the framework of stochastic optimization. An analytic method based on the discrete dynamic programming equation (Bellman equation)…
We propose a general approximation method for determining optimal trading strategies in markets with proportional transaction costs, with a polynomial approximation of the residual value function. The method is exemplified by several…
In an incomplete market setting, we consider two financial agents, who wish to price and trade a non-replicable contingent claim. Assuming that the agents are utility maximizers, we propose a transaction price which is a result of the…
This paper presents an optimal allocation problem in a financial market with one risk-free and one risky asset, when the market is driven by a stochastic market price of risk. We solve the problem in continuous time, for an investor with a…
Minimizing volatility and adjustment costs is of central importance in many economic environments, yet it is often complicated by evolving feasibility constraints. We study a decision maker who repeatedly selects an action from a…
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…
We consider reallocation problems in settings where the initial endowment of each agent consists of a subset of the resources. The private information of the players is their value for every possible subset of the resources. The goal is to…
We investigate the general structure of optimal investment and consumption with small proportional transaction costs. For a safe asset and a risky asset with general continuous dynamics, traded with random and time-varying but small…
Ecosystems enjoy increasing attention due to their flexibility and innovative power. It is well known, however, that this type of network-based economic governance structures occupies a potentially unstable position between the two stable…
Abstract In this work, we build two environments, namely the modified QLBS and RLOP models, from a mathematics perspective which enables RL methods in option pricing through replicating by portfolio. We implement the environment…
A decision maker is choosing between an active action (e.g., purchase a house, invest certain stock) and a passive action. The payoff of the active action depends on the buyer's private type and also an unknown state of nature. An…
Paper is based on "The cost of illiquidity and its effects on hedging", L. C. G. Rogers and Surbjeet Singh, 2010. We generalize its thesis to constant elasticity model, which own previously used Black-Schoels model as a special case. The…