Derives option pricing formulas consistent with rational asset pricing theory.
problem Existing behavioral finance option pricing formulas allow arbitrage opportunities.
method Introduces transaction costs to offset arbitrage opportunities.
result Derives formulas consistent with rational dynamic asset pricing theory.
If pricing kernels are assumed non-negative then the inverse problem of finding the pricing kernel is well-posed. The constrained least squares method provides a consistent estimate of the pricing kernel. When the data are limited, a new method is suggested: relaxed maximization of the relative entropy. This estimator …
Paper introduces a flexible HJM framework for consistent electricity prices.
problem Consistent modeling of intraday, spot, futures, and option prices.
method Flexible HJM-type framework with economic interpretations.
result Allows existing spot price models to be used in HJM setting.
Consistent valuation across different interest rate curves using pricing kernels.
problem Asset pricing with varying discount and cash flow rates.
method Pricing kernel framework linking distinct markets with consistent curve-conversion factors.
result Derivation of an across-curve pricing formula enabling consistent valuation and hedging.
Under proportional transaction costs, a price process is said to have a consistent price system, if there is a semimartingale with an equivalent martingale measure that evolves within the bid-ask spread. We show that a continuous, multi-asset price process has a consistent price system, under arbitrarily small proporti…
Develops a framework for consistent pricing of interest rate derivatives.
problem Consistent pricing of bivariate interest rate exotics across interconnected markets.
method Schrödinger optimal transport problem with constraints.
result Demonstrates practical applicability and no-arbitrage bounds computation.
We study time consistent dynamic pricing mechanisms of European contingent claims under uncertainty by using G framework introduced by Peng ([24]). We consider a financial market consisting of a riskless asset and a risky stock with price process modelled by a geometric generalized G-Brownian motion, which features the…
Study consistency of option prices with bid-ask spreads.
problem Determine the minimum bid-ask spread for given European call option prices.
method Developed a market model allowing bid-ask spreads, solved for single maturity, and provided partial results for multiple maturities.
result Fully solved the problem for single maturity and provided partial results for multiple maturities.
This paper introduces a new method to price long-dated insurance contracts.
problem Pricing of long-dated, insurance-type contracts is complex and inconsistent.
method Loading pricing combines theoretically minimal and formally risk-neutral prices.
result Loading degree is constant for minimally fluctuating contracts and is a key characteristic.
In markets with transaction costs, consistent price systems play the same role as martingale measures in frictionless markets. We prove that if a continuous price process has conditional full support, then it admits consistent price systems for arbitrarily small transaction costs. This result applies to a large class o…
We prove the Fundamental Theorem of Asset Pricing for a discrete time financial market where trading is subject to proportional transaction cost and the asset price dynamic is modeled by a family of probability measures, possibly non-dominated. Using a backward-forward scheme, we show that when the market consists of a…
Study optimal pricing algorithms for strategic buyers in repeated auctions.
problem Optimizing revenue in auctions with strategic buyers over multiple rounds.
method Proposed a novel algorithm that never decreases prices and has a strategic regret bound of Θ(log log T).
result Closed the open research question on no-regret horizon-independent weakly consistent pricing.
We develop a version of the fundamental theorem of asset pricing for discrete-time markets with proportional transaction costs and model uncertainty. A robust notion of no-arbitrage of the second kind is defined and shown to be equivalent to the existence of a collection of strictly consistent price systems.
We introduce, in continuous time, an axiomatic approach to assign to any financial position a dynamic ask (resp. bid) price process. Taking into account both transaction costs and liquidity risk this leads to the convexity (resp. concavity) of the ask (resp. bid) price. Time consistency is a crucial property for dynami…
A new approach for pricing FX options that uses a single model for all markets.
problem Consistent pricing of FX options across different markets.
method Intermediate currency approach, calibrating to domestic market volatility smile.
result Model automatically reproduces correct foreign market volatility smiles.
Study finds upper bounds for exotic options using call prices, converging with more data.
problem Finding consistent upper price bounds for exotic options with limited call price data.
method Model-free approach using martingale property of stock price process, focusing on directionally convex payoffs.
result Upper price bounds converge with more observed call prices, especially for directionally convex payoffs.
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.
We consider evaluation methods for payoffs with an inherent financial risk as encountered for instance for portfolios held by pension funds and insurance companies. Pricing such payoffs in a way consistent to market prices typically involves combining actuarial techniques with methods from mathematical finance. We prop…
New models capture dynamic derivatives pricing with efficient simulations.
problem Capturing dynamic features of derivatives' term structures.
method Machine learning techniques to store and efficiently simulate complex drift terms.
result First efficient dynamic term structure models.
The study analyzes financial markets with transaction costs and proves asset pricing theorems.
problem Model-independent financial markets with proportional transaction costs.
method Develops a Fundamental and Superhedging Theorem, proving equivalence to Consistent Price Systems.
result The superhedging price in the presence of transaction costs matches the frictionless case for a suitable process.
Recent theoretical results establish that time-consistent valuations (i.e. pricing operators) can be created by backward iteration of one-period valuations. In this paper we investigate the continuous-time limits of well-known actuarial premium principles when such backward iteration procedures are applied. We show tha…
Paper introduces prospective strict no-arbitrage for markets with transaction costs.
problem No-arbitrage condition in markets with transaction costs.
method Introduces prospective strict no-arbitrage, proves closedness of attainable portfolios.
result Prospective strict no-arbitrage implies closed attainable portfolios, equivalent to consistent price system.
A consistency criterion for price impact functions in limit order markets is proposed that prohibits chain arbitrage exploitation. Both the bid-ask spread and the feedback of sequential market orders of the same kind onto both sides of the order book are essential to ensure consistency at the smallest time scale. All t…
In this paper we present a rigorously motivated pricing equation for derivatives, including general cash collateralization schemes, which is consistent with quoted market bond prices. Traditionally, there have been differences in how instruments with similar cash flow structures have been priced if their definition fal…
Develops a new stochastic volatility model for consistent pricing of VIX and equity derivatives.
problem Consistent pricing of VIX and equity derivatives with stochastic volatility and jumps.
method 4/2 stochastic volatility plus jumps model, Lie symmetries theory for PDEs, closed-form solution for Fourier-Laplace transform.
result 4/2 model provides better pricing of VIX derivatives compared to Heston and 3/2 models.
Constant price impact functions, much used in financial literature, are shown to give rise to paradoxical outcomes since they do not allow for proper predictability removal: for instance the exploitation of a single large trade whose size and time of execution are known in advance to some insider leaves the arbitrage o…
We propose a minimal theory of non-linear price impact based on a linear (latent) order book approximation, inspired by diffusion-reaction models and general arguments. Our framework allows one to compute the average price trajectory in the presence of a meta-order, that consistently generalizes previously proposed pro…
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.
The paper optimizes investment strategies with random endowments and transaction costs.
problem Maximizing utility with random endowments and transaction costs.
method Using consistent price system (CPS) and duality theory, the paper establishes optimal investment solutions.
result Existence and uniqueness of optimal solution for utility maximization problem.
We find a rank effect in commodity prices that yields higher returns.
problem Understanding the pricing dynamics of commodities over time.
method Nonparametric econometric methods to demonstrate the rank effect as a consequence of stationary relative asset price distribution.
result A portfolio of lower-ranked, lower-priced commodities yields 23% higher annual returns than a portfolio of higher-ranked, higher-priced commodities.
Derives token price process for AMM tokens, finds leverage effect and pricing discrepancies.
problem Derives token price process for AMM tokens.
method Derives CEV process for token price, derives closed-form option prices, introduces liquidity-adjusted Greeks.
result Token price process is CEV, with leverage effect and pricing discrepancies.
Study reveals investor behavior in NFT bubbles.
problem Understanding retail investor behavior in asset bubbles.
method Systematic study of NFTs using public blockchain data.
result Sophisticated investors outperform others in NFT bubbles.
EB improves asset pricing by mining large strategies without lookahead bias.
problem Lack of unbiased asset pricing models with out-of-sample performance.
method Empirical Bayes applied to 136,000 long-short strategies.
result EB provides unbiased predictions with transparent intuition.
Study optimizes option pricing with robust strategies, ensuring consistency with vanilla option prices.
problem Optimizing exotic option pricing with robust strategies.
method Introduces semistatic strategies and robust convex integral functionals on bounded continuous functions.
result Consistent indifference prices with observed vanilla option prices.
The paper defines and analyzes scalar risk measures in markets with transaction costs.
problem Defining and analyzing scalar risk measures in markets with transaction costs.
method Dual representation of scalar risk measures, time consistency, backward recursion.
result A weaker notion of time consistency for scalar risk measures in markets with frictions is defined and proven equivalent to a backward recursion.
New algorithm calibrates local volatility from option prices using deep neural networks.
problem Calibrating local volatility from market option prices with reduced interpolation and reprice errors.
method Deep self-consistent learning using neural networks to approximate both option prices and local volatility.
result Improved performance in terms of reduced interpolation and reprice errors compared to existing methods.
New framework improves option pricing models by addressing volatility dynamics.
problem Challenges in standard option pricing models, especially in deriving implied volatility.
method Developed a new framework called Implied Remaining Variance (IRV), identifying minimal conditions for absence of arbitrage.
result Reformulated results of Schweizer and Wissel (2008b) and independently derived El Amrani, Jacquier and Martini (2021) results within IRV framework.
In this paper a simple model for the evolution of the forward density of the future value of an asset is proposed. The model allows for a straightforward initial calibration to option prices and has dynamics that are consistent with empirical findings from option price data. The model is constructed with the aim of bei…
Study dynamic pricing with ambiguity using G-expectation.
problem Dynamic pricing under ambiguity preferences.
method Introduce dynamic expected utility with ambiguity via G-expectation.
result Obtain dynamic consistency of indifference pricing.
New models avoid probability in option pricing, matching historical and implied volatilities.
problem Developing option pricing models without probability.
method Statistical analysis of historical volatility and pathwise lift of stock dynamics.
result Option pricing models can be based on pathwise properties of stock dynamics.
FINN learns option pricing and hedging using financial theory.
problem Learning accurate option prices and sensitivities from financial theory.
method Self-supervised replication objective based on dynamic hedging.
result FINN accurately recovers classical Black--Scholes prices and performs robustly in stochastic volatility environments.
Paper shows pricing rules affect insider's optimal strategy in Kyle-Back models.
problem Effect of pricing rules on insider's optimal strategy in Kyle-Back models.
method Analyzed a large class of pricing rules and derived necessary conditions for consistency with equilibrium.
result Pricing rules can lead to infinite value function for insiders when strategies are restricted, contradicting folk result.
Study on pricing and hedging for American options in dynamic and static markets.
problem Investigating pricing-hedging duality for American options in discrete time financial models.
method Abstract setting with universal enlargement and dynamic consistency, applied to robust framework examples.
result Recovery of pricing-hedging duality through dynamic consistency and market extensions.
Deep RL solves dynamic risk pricing for complex financial models.
problem Dynamic risk measures in financial derivatives pricing.
method Deterministic actor-critic deep reinforcement learning (ACRL) for time-consistent expectile risk.
result High-quality hedging policies and prices for complex financial instruments.
This paper proposes a new model for SPX and VIX derivatives markets.
problem Joint calibration of SPX and VIX markets.
method Composite change of time structure in a time-changed Lévy model.
result Explicit characteristic function and pricing formula derived.
We propose a top-down model for cash CLO. This model can consistently price cash CLO tranches both within the same deal and across different deals. Meaningful risk measures for cash CLO tranches can also be defined and computed. This method is self-consistent, easy to implement and computationally efficient. It has the…
Path integral method calculates barrier option prices.
problem Barrier option pricing in finance.
method Path integral method applied to trapezoid and square potential barriers.
result Analytical expressions for option pricing derived.
Hamiltonian method applied to floating barrier options pricing.
problem Pricing of floating barrier options.
method Hamiltonian approach in quantum mechanics applied to barrier options.
result Analytical expressions for pricing kernel and option price derived.