Solves ambiguity in incomplete markets by minimizing price measure entropy.
problem Ambiguity in pricing incomplete markets.
method Minimizes the entropy of the price measure from the economic measure, subject to mark-to-market constraints.
result Resolves ambiguity and provides a consistent pricing measure.
The paper extends the market price of risk for electricity swap contracts, incorporating jump risk.
problem Pricing electricity swap contracts with consideration of jump risk.
method Introducing a Merton type model with jumps and transferring to the physical measure, comparing arithmetic and geometric averaging.
result A decomposition of swap's market price of risk into classical and market price of risk components.
Introduces an asymmetric model for measuring market risk.
problem Existing models are symmetric and do not account for asymmetric risk.
method Develops an asymmetric capital asset pricing model that considers position-dependent market risk.
result Long positions in Apple stock have lower volatility than the market, contrary to the standard model.
This essay quantifies convexities in incomplete markets using entropy, adjusting prices for risk and incompleteness.
problem Quantifying convexities in incomplete markets and adjusting prices for risk and incompleteness.
method Using entropy, the essay quantifies convexities and adjusts prices for risk and incompleteness in incomplete markets.
result A new price principle derived from a log-martingale condition is introduced, matching risk aversion and adjusting for market incompleteness and default risk.
Model quantifies market price of trading liquidity risk and market depth.
problem Analyzing the market price of trading liquidity risk and market depth.
method Introduced a framework to analyze market price of liquidity risk, derived inhomogeneous Bernoulli ODE, obtained closed form solutions.
result Market depth encapsulates the market price of liquidity risk.
When investors have heterogeneous attitudes towards risk, it is reasonable to assume that each investor has a pricing kernel, and that these individual pricing kernels are aggregated to form a market pricing kernel. The various investors are then buyers or sellers depending on how their individual pricing kernels compa…
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 Constant Relative Risk Aversion (CRRA) utility, under two scenarios: when the ma…
Study analyzes prediction market convergence and pricing mechanisms.
problem Understanding and optimizing prediction market performance and price formation.
method Introduces a multivariate utility (MU) based mechanism to unify market-making schemes and establish convergence results.
result The limiting price converges to the geometric mean of agent beliefs in exponential utility-based markets and to a weighted power mean in risk-measure-based markets.
Study financial contracts pricing in markets with nonproportional costs and constraints.
problem Financial contract pricing in markets with nonproportional transaction costs and portfolio constraints.
method Direct and dual characterization of market-consistent prices with acceptable risk thresholds.
result Extension of the Fundamental Theorem of Asset Pricing to include good deals and scalable good deals.
Model for hedging price and quantity risks in electricity markets.
problem Hedging risks for energy retailers in a regulated electricity market.
method Closed-form solution for optimal portfolio using financial instruments based on price and weather indexes.
result Closed-form solution for mean-var model in discrete setting without distributional assumptions.
DFMM automates market making with adaptive pricing and risk management.
problem Challenges in decentralised automated market making (AMMs).
method Data aggregator, order routing, rebalancing, arbitrageurs, protective buffers, algorithmic accounting.
result DFMM optimises inventory risk and ensures market stability.
This paper offers a framework for FX dealers to decide between internalizing and externalizing their market making to balance risk control and costs.
problem FX dealers face risk from flow uncertainty and need to decide on internalization vs. externalization strategies.
method Develops an optimal control framework that balances pricing and hedging strategies.
result Provides insights into the trade-off between risk control and transaction costs in market making.
This review classifies electricity price models for risk management.
problem Choosing suitable models for risk management in electricity markets.
method Classification of models based on their ability to represent price behavior.
result Helps users select appropriate models for risk management.
The paper studies risk-based prices in financial markets under volatility uncertainty.
problem Risk-based indifference prices in financial markets under volatility uncertainty.
method Asymptotic analysis of risk-based prices in discrete-time financial markets.
result Risk-based prices form a strongly continuous convex monotone semigroup.
The paper assesses how equity tail risk impacts US Treasury bond returns.
problem The effects of equity tail risk on the US government bond market.
method Estimating equity tail risk using option-implied stock market volatility and assessing its predictive power in reduced-form regressions and a term structure model.
result Equity tail risk significantly predicts one-month excess returns on Treasuries.
Deep hedging strategies for Green PPAs in electricity markets reduce risk.
problem Risk management in Green Power Purchase Agreements (PPAs) due to price and weather risks.
method Utilizes machine learning to construct hedging strategies.
result Deep hedging strategies outperform static and dynamic benchmarks.
This paper highlights the role of risk neutral investors in generating endogenous bubbles in derivatives markets. We find that a market for derivatives, which has all the features of a perfect market except completeness and has some risk neutral investors, can exhibit extreme price movements which represent a violation…
The study reveals traders' risk aversion and a new risk premium from market volumes.
problem Understanding traders' rationality and risk aversion from market volumes.
method Optimal Merton dynamics model to estimate average risk aversion and price of risk.
result Validation of the proposed trading strategy model on real data.
Model quantifies uncertainty's impact on European option prices.
problem Uncertainty in market volatility risk affects option pricing.
method Hamilton-Jacobi-Bellman framework and finite element method.
result Dependence of Delta on uncertainty is nonlinear and varied.
RL agent learns to manage inventory and price in dealer market simulations.
problem Managing inventory and price in a dealer market with RL.
method Multi-agent simulation, reinforcement learning, different reward formulations.
result RL agent learns competitor's pricing and manages inventory effectively.
Crowded trades cluster investors, affecting stock price stability.
problem Crowded trades lead to price instability and systemic risk.
method Market clustering measure using granular trading data.
result Market clustering has a causal effect on stock return distribution tails, especially positive tail.
Analyzes how rough volatility affects stock pricing and risk premium.
problem Impact of non-deterministic volatility risk on stock pricing.
method Rough volatility model under historical measure, analysis of stochastic volatility risk.
result Impact of non-deterministic volatility risk on pricing is significant.
New model prices corporate bonds by accounting for non-hedgeable risk.
problem Non-hedgeable risk in corporate bond pricing.
method Introduces a new model that drops liquidity assumption and uses a correlated liquid asset.
result Shows arbitrage-free formula for corporate bond pricing with non-hedgeable risk.
Catastrophe risk is a major threat faced by individuals, companies, and entire economies. Catastrophe (CAT) bonds have emerged as a method to offset this risk and a corresponding literature has developed that attempts to provide a market-consistent pricing methodology for these and other long-dated, insurance-type cont…
Modeling financial chaos with market makers' risk appetite.
problem Unpredictable price changes in financial markets.
method Using Hamiltonian approach with anharmonic oscillators and nonlinear coupling.
result Market makers' risk appetite determines chaotic dynamics in financial markets.
This paper investigates how two important sources of risk -- market tail risk and extreme market volatility risk -- are priced into the cross-section of asset returns across various investment horizons. To identify such risks, we propose a quantile spectral beta representation of risk based on the decomposition of cova…
Investment risk on a regulated market is influenced by gold prices and oil trading.
problem Systematic risk of loss in investment portfolios under sanctions.
method Statistical analysis of tail dependence between oil, gold, and Tehran Stock Exchange Index.
result Tail dependence should be considered for systematic risk, and active bartering of oil can prevent market collapse.
Paper optimizes trading strategies by creating shadow prices for markets with transaction costs.
problem Optimizing trading strategies in markets with transaction costs.
method Developed shadow prices to simplify optimization into a frictionless market, considering second-order transaction costs.
result Alternative strategies outperform shadow prices for risk aversion different from one.
Proposes second-order Esscher transform for Lévy models in financial markets.
problem Risk management and quantification in markets with jumps and Lévy dynamics.
method Derives densities, equivalent measures, and pricing formulas for European call options.
result Option prices are bounded and monotonic with the second-order Esscher parameter.
The paper explores risk measures and arbitrage in financial markets.
problem Quantifying and managing risk in financial markets.
method Introduces new risk measure axioms and characterizes arbitrage conditions.
result Derives the consistent price interval for financial contracts.
In the context of an incomplete market with a Brownian filtration and a fixed finite time horizon, this paper proves that for general dynamic convex risk measures, the buyer's and seller's risk indifference prices of a contingent claim are bounded from below and above by the dynamic lower and upper hedging prices, resp…
Proposes a new model to price options considering market forces beyond Black-Scholes.
problem Tackles the limitations of the Black-Scholes model in capturing unexpected market behaviors.
method Uses the analogy between quantum harmonic oscillator and financial market dynamics to propose a new market force-driven model.
result Shows how various market forces can be incorporated to modify option pricing, providing practical applications.
Develops framework for valuing and assessing risk of renewable PPAs.
problem Valuation and risk assessment of non-standard renewable PPAs.
method Formalizes payoff structures, derives fair contract prices, proposes market risk-assessment methodology.
result Fair prices and risk profiles vary across technologies and contractual structures.
UAMM uses external market prices to improve AMM efficiency and reduce liquidity provider risk.
problem Traditional AMMs lack consideration of external markets and risk management.
method UAMM calculates prices by incorporating external market prices and impermanent loss, maintaining constant product curve properties.
result UAMM eliminates arbitrage opportunities when external market prices are efficient, reducing liquidity provider risk.
The Kelly Criterion is applied to prediction markets to analyze risk and return.
problem Mean beliefs in prediction markets often differ from actual prices.
method Logarithmic utility and Kullback-Leibler divergence are used to study risk and return adjustments.
result Misjudgment of bias and investment fraction affect portfolio growth rate.
Method determines asset prices in incomplete markets to optimize portfolios.
problem Optimizing portfolios in incomplete markets with price constraints.
method Maximum entropy in the mean to adjust distortion function from bid-ask data.
result Prices of assets comply with portfolio optimization constraints.
This paper investigates the risk-return relationship in determination of housing asset pricing. In so doing, the paper evaluates behavioral hypotheses advanced by Case and Shiller (1988, 2002, 2009) in studies of boom and post-boom housing markets. The paper specifies and tests a multi-factor housing asset pricing mode…
The paper analyzes insurance pricing and capital allocation in imperfect markets.
problem Analyzing insurance pricing and capital allocation in imperfect markets.
method Non-additive distortion pricing functional and principle of equal priority of payments in default.
result Derives the natural allocation of premium and margin with properties that merit the name.
The participants of the electricity market concern very much the market price evolution. Various technologies have been developed for price forecast. SVM (Support Vector Machine) has shown its good performance in market price forecast. Two approaches for forming the market bidding strategies based on SVM are proposed. …
No-arbitrage models of term structure have the feature that the return on zero-coupon bonds is the sum of the short rate and the product of volatility and market price of risk. Well known models restrict the behavior of the market price of risk so that it is not dependent on the type of asset being modeled. We show tha…
This paper addresses AMMs for expiring assets, ensuring liquidity and risk management.
problem AMMs struggle with assets that expire, leading to liquidity issues and risk exposure.
method Combines AMM and limit-order book features, ensuring liveness and dynamic price adjustment.
result A DEX for expiring assets maintains liquidity and risk management.
Financial derivatives based on road travel times for hedging and pricing.
problem Market risk in crypto and banking sectors.
method Modeling travel time data with CARMA models and applying risk-neutral pricing.
result Derivatives pricing based on travel time and its volatility.
The left tail of the implied volatility skew, coming from quotes on out-of-the-money put options, can be thought to reflect the market's assessment of the risk of a huge drop in stock prices. We analyze how this market information can be integrated into the theoretical framework of convex monetary measures of risk. In …
This paper models financial contagion with endogenously determined market liquidity.
problem Financial contagion and its impact on market liquidity during price drops.
method Developed a joint clearing system for interbank payments, asset prices, and market liquidity, with endogenous market capacity.
result Endogenous market liquidity significantly affects system risk during financial contagion.
Study of a risk-averse informed trader in a multi-asset market with non-Gaussian prices.
problem Existence of equilibrium in a multi-asset market with non-Gaussian prices and a risk-averse informed trader.
method Constructed equilibrium using Fokker-Planck equation and coupled partial differential equations with an optimal transport constraint.
result Equilibrium exists in a market with multiple assets and non-Gaussian prices.
Study shows marketable order routing to wholesalers benefits all traders, leading to lower market depth and price volatility.
problem Determining the preference of retail traders for marketable order routing.
method Two models: one for market makers competing for retail order flow (Bertrand model) and another for price-taking competitive liquidity providers (open exchange model).
result Routing marketable orders to wholesalers is preferred by all traders, leading to mean reverting inventories and lower market depth.
The study models and values CAT bonds across multiple regions.
problem Valuation of CAT bonds with dependencies across different regions.
method Developed models for independent, proportional, and arbitrary two-dimensional distribution cases of catastrophe losses in different areas. Applied normal approximation and Wang's transform for pricing.
result Illustrated differences in scenarios and performance of the approximation on real data.
Grid-scale batteries' bid patterns in price uncertainty markets
problem Interpreting bids from grid-scale batteries in wholesale electricity markets under price uncertainty
method Developing an asset-level model of a price-taking battery
result Empirical results deliver insights into withholding behavior, uncertainty effects, and risk management reshaping bid curves