Related papers: Variance-optimal hedging for processes with statio…

It is well-known that using delta hedging to hedge financial options is not feasible in practice. Traders often rely on discrete-time hedging strategies based on fixed trading times or fixed trading prices (i.e., trades only occur if the…

Quadratic hedging of option payoffs generates the variance optimal martingale measure. When an option features an exercise policy and its cash flows are hedged according to this approach, it may be tempting to optimize such a policy under…

A new method for stochastic control based on neural networks and using randomisation of discrete random variables is proposed and applied to optimal stopping time problems. The method models directly the policy and does not need the…

Of stochastic differential equations, diffusion processes have been adopted in numerous applications, as more relevant and flexible models. This paper studies diffusion processes in a different setting, where for a given stationary…

We consider the hedging error of a derivative due to discrete trading in the presence of a drift in the dynamics of the underlying asset. We suppose that the trader wishes to find rebalancing times for the hedging portfolio which enable him…

We propose a variational method to solve all three estimation problems for nonlinear stochastic dynamical systems: prediction, filtering, and smoothing. Our new approach is based upon a proper choice of cost function, termed the {\it…

We reconsider the variational integration of optimal control problems for mechanical systems based on a direct discretization of the Lagrange-d'Alembert principle. This approach yields discrete dynamical constraints which by construction…

In this paper, we address the question of the optimal Delta and Vega hedging of a book of exotic options when there are execution costs associated with the trading of vanilla options. In a framework where exotic options are priced using a…

In Electricity markets, illiquidity, transaction costs and market price characteristics prevent managers to replicate exactly contracts. A residual risk is always present and the hedging strategy depends on a risk criterion chosen. We…

We present a new approach for studying the problem of optimal hedging of a European option in a finite and complete discrete-time market model. We consider partial hedging strategies that maximize the success probability or minimize the…

Progressive Hedging is a popular decomposition algorithm for solving multi-stage stochastic optimization problems. A computational bottleneck of this algorithm is that all scenario subproblems have to be solved at each iteration. In this…

We consider the mean-variance hedging problem under partial Information. The underlying asset price process follows a continuous semimartingale and strategies have to be constructed when only part of the information in the market is…

In this work, we study the optimal discretization error of stochastic integrals, in the context of the hedging error in a multidimensional It\^{o} model when the discrete rebalancing dates are stopping times. We investigate the convergence,…

We deal with the problem of optimal estimation of the linear functionals constructed from unobserved values of a continuous time stochastic process with periodically correlated increments based on past observations of this process. To solve…

Numerous empirical proofs indicate the adequacy of the time discrete auto-regressive stochastic volatility models introduced by Taylor in the description of the log-returns of financial assets. The pricing and hedging of contingent products…

We expose a theoretical hedging optimization framework with variational preferences under convex risk measures. We explore a general dual representation for the composition between risk measures and utilities. We study the properties of the…

We find the variance-optimal equivalent martingale measure when multivariate assets are modeled by a regime-switching geometric Brownian motion, and the regimes are represented by a homogeneous continuous time Markov chain. Under this new…

The mathematical problem of the static storage optimisation is formulated and solved by means of a variational analysis. The solution obtained in implicit form is shedding light on the most important features of the optimal exercise…

We consider as given a discrete time financial market with a risky asset and options written on that asset and determine both the sub- and super-hedging prices of an American option in the model independent framework of ArXiv:1305.6008. We…

Existing deterministic variational inference approaches for diffusion processes use simple proposals and target the marginal density of the posterior. We construct the variational process as a controlled version of the prior process and…