The paper analyzes investment and consumption strategies under uncertain market conditions.
problem Investment and consumption under drift and volatility uncertainties.
method Randomization approach to construct robust preferences and strategies.
result Developed optimal and robust investment and consumption strategies remain valid in the physical market.
New model predicts electricity spot and forward prices in coupled markets.
problem Predicting electricity prices in markets with limited interconnection.
method Structural approach to model link between prices, consumption, and production.
result Explicit formulas for forward prices and transmission rights values.
China uses two Renminbi markets to hedge cross-border risks, leading to a price discrepancy.
problem China's two Renminbi markets (onshore and offshore) create a price discrepancy for currency forwards.
method Joint equilibrium model for spot and forward trading with transaction costs and segmented supply.
result The model explains the observed forward price discrepancy in terms of offshore liquidity stress.
In the LIBOR market model, forward interest rates are log-normal under their respective forward measures. This note shows that their distributions under the other forward measures of the tenor structure have approximately log-normal tails.
New forward performance processes for predictable market updates.
problem Creating predictable forward performance processes for market information.
method Developed a binomial model with dynamic parameters and solved an inverse investment problem.
result Established conditions for the existence and uniqueness of solutions to the inverse problem.
The paper analyzes performance criteria for competing fund managers in Ito-diffusion markets.
problem Analyzing performance of competing fund managers in Ito-diffusion markets.
method Developed forward relative performance criteria and forward Nash equilibrium for passive and competitive cases.
result Extended performance criteria for investment problems in Ito-diffusion markets.
Enhances swaption modeling with rough stochastic volatility.
problem Modeling swaption volatility in post-LIBOR markets.
method Introduces rough stochastic volatility into FMM and rigorously justifies the freezing approximation.
result Establishes a new framework connecting FMM to rough Bergomi for forward swap rates.
Two new models for forward power prices capture clustering jumps.
problem Describing forward power prices with clustering jumps.
method Continuous branching processes with immigration and Hawkes processes with exponential kernel.
result Models adequately describe forward prices evolution in French power market.
The paper approximates forward curve models in commodity markets using finite dimensional models.
problem Approximating forward curve models in commodity markets with finite dimensional arbitrage-free models.
method Construction of a convenient Riesz basis on the state space of the term structure dynamics.
result Recovery of a closed form representation of the forward price dynamics in the approximation models and uniform convergence to the true dynamics.
Designs a Heath-Jarrow-Morton framework for forward contracts in power and gas markets.
problem Designing a framework for forward contracts in power and gas markets.
method Heath-Jarrow-Morton framework, affine functions, Girsanov kernel, measure changes.
result Validates measure changes for forward contracts in power and gas markets.
New method for dynamic valuation in markets with random endowments.
problem Dynamic valuation in markets with random endowments.
method Developed new FBSDE systems and established optimality conditions.
result Established necessary and sufficient conditions for optimality.
Methodology projects forward electricity contract prices using market equilibrium and social welfare optimization.
problem Quantifying forward contract risks and optimizing revenue/cost for generators/load/traders.
method Market equilibrium and social welfare optimization; linear programming for total agents' welfare.
result Equilibrium contract price corresponds to the dual variable of equilibrium constraints.
Study uses put-call parity to estimate cost of funding in equity derivatives markets.
problem Estimating the cost of funding in active equity derivative markets.
method Develops a method using European put and call prices to recover the implicit discount factor and cost of funding.
result Identifies the cost of funding in major equity markets, showing it is typically around 34 basis points above OIS.
Study on hedging and valuation of basis risk in incomplete markets with partial information.
problem Hedging and valuation of European and American claims in an incomplete market with correlated assets and partial information.
method Stochastic control and partial information scenario, forward indifference valuation, dual representation, PDE approach.
result Derivation of optimal hedging strategy and forward indifference price representation for claims.
Generic model for commodity derivatives pricing.
problem Modeling forward curves in commodity derivatives.
method Theoretical demonstration of multiple components driving commodity prices; empirical validation.
result Model accurately prices commodity derivatives, close to market prices.
We consider a market model that consists of financial investors and producers of a commodity. Producers optionally store some production for future sale and go short on forward contracts to hedge the uncertainty of the future commodity price. Financial investors take positions in these contracts in order to diversify t…
Study forward investment performance in semimartingale markets with stochastic factors.
problem Investigate forward investment performance in incomplete semimartingale markets with power risk preferences and stochastic integrated factors.
method Develop necessary and sufficient conditions for FIPP existence, use integral representations, and solve ill-posed HJB equations.
result Explicit constructions for time-monotone FIPPs in semimartingale models, generalizing from Brownian to semimartingale markets.
Optimal portfolio selection in incomplete markets analyzed with SPDEs and HJB equations.
problem Optimal portfolio selection in incomplete markets with forward investment performance criteria.
method Analysis of SPDEs and HJB equations, expansion and remainder estimates.
result Explicit formulae for leading and first order terms of forward investment process and optimal feedback portfolios.
Investigates how slow mean reversion affects energy option pricing.
problem Pricing options on energy forwards with varying mean reversion speeds.
method Examines geometric multi-factor model with different rates of mean reversion.
result Determines upper and lower bounds for option pricing errors.
This paper deals with forward performances of HARA type. Precisely, for a market model in which stock price processes are modeled by a locally bounded d-dimensional semimartingale, we elaborate a complete and explicit characterization for this type of forward utilities. Furthermore, the optimal portfolios for each of…
Paper explains accrual and mark-to-market valuation for interest rate trades.
problem Understanding the valuation differences between accrual and mark-to-market methods for interest rate trades.
method Comparison of discounted cashflow valuation to spread-based valuation, Taylor series approximation, and deferral concept.
result Simple intuition and mathematical explanation of accrual and mark-to-market adjustments.
Study optimal investment and reinsurance for insurance companies in a dynamic market model.
problem Optimal investment and reinsurance strategies for insurance companies in a regime-switching market model.
method Forward dynamic exponential utility, value function construction, proportional reinsurance optimization.
result Characterization of optimal investment strategy and proportional reinsurance level.
Proposes a model for long-term electricity contracts with explicit computation and easy calibration.
problem Non-storability and poor liquidity in long-term electricity markets.
method Multi-factor polynomial framework for explicit computation of forwards, risk premium, and correlation.
result Calibrated model provides a risk-minimizing hedge for various time horizons.
We study the forward price dynamics in commodity markets realized as a process with values in a Hilbert space of absolutely continuous functions defined by Filipović. The forward dynamics are defined as the mild solution of a certain stochastic partial differential equation driven by an infinite dimensional Lévy proces…
The paper represents performance processes in incomplete markets using BSDE.
problem Incomplete markets with stochastic factors.
method Ergodic and infinite horizon BSDEs for homothetic forward performance processes.
result Derivation of representations for power, exponential, and logarithmic forward performance processes.
Model interest rates and energy futures with regime-switching dynamics.
problem Modeling interest rates and energy futures with regime-switching dynamics.
method HJM model with Markov-chain modulated forward rates, proving affine structure for term structure.
result Explicit solutions for forward curves in many cases.
Study examines market impact in high frequency options trading.
problem Understanding market impact in high frequency options trading.
method Proprietary database of metaorders, algorithmic approach based on implied volatility parameters.
result Similar market dynamics found in options market as in equity market.
Turnpike results for risk tolerance in incomplete markets under time-monotone criteria.
problem Turnpike results for risk tolerance in incomplete markets under time-monotone criteria.
method Time-monotone forward performance criteria, analysis of limits, dependence on measure support.
result Temporal and spatial limits do not coincide and depend on measure support.
This paper considers the modelling of collateralized debt obligations (CDOs). We propose a top-down model via forward rates generalizing Filipović, Overbeck and Schmidt (2009) to the case where the forward rates are driven by a finite dimensional Lévy process. The contribution of this work is twofold: we provide condit…
This paper develops a new methodology for studying continuous-time Nash equilibrium in a financial market with asymmetrically informed agents. This approach allows us to lift the restriction of risk neutrality imposed on market makers by the current literature. It turns out that, when the market makers are risk averse,…
Forward hedging reshapes incentive provision in firms.
problem How does forward hedging affect incentive provision in firms?
method We consider a CARA framework to jointly characterize optimal production, compensation, and static hedging in equilibrium.
result Delegation and external hedging are partial substitutes, and delegation can increase firm value even when the agent is more risk averse.
Solves new quadratic BSDE systems for market performance analysis.
problem Characterizing forward performance processes in regime switching markets.
method Introduces and solves ergodic BSDE systems in infinite time horizon.
result Connection between ergodic BSDE solutions and long-term growth rates of utility maximization.
The article constructs a forward utility for markets with multiple default risks.
problem Characterizing forward performance processes in a market with multiple default risks.
method Using Jacod-Pham decomposition and recursive BSDEs, the article constructs a forward utility and proves its existence and uniqueness.
result The article identifies the risk-sensitive long-run growth rate of the optimal wealth process in a stochastic factor model with ergodic dynamics.
This paper improves SABR/LMM for better practical use in global banks.
problem Inflexibility of existing SABR/LMM models.
method Develops a comprehensive SABR/LMM model with time-dependent skew and smile.
result Provides a flexible and practical SABR/LMM model for global banks.
We revisit the problem of pricing and hedging plain vanilla single-currency interest rate derivatives using multiple distinct yield curves for market coherent estimation of discount factors and forward rates with different underlying rate tenors. Within such double-curve-single-currency framework, adopted by the market…
Combines historical and market data for better portfolio selection.
problem Improving portfolio selection through diverse information integration.
method Bayesian learning via Gaussian mixture model to harmonize historical and market data.
result The method enhances forecasting accuracy and robustness across various capital markets.
Principal Component Analysis (PCA) is the most common nonparametric method for estimating the volatility structure of Gaussian interest rate models. One major difficulty in the estimation of these models is the fact that forward rate curves are not directly observable from the market so that non-trivial observational e…
Model for multi-period carbon market pricing with allowances.
problem Carbon market pricing with multiple trading periods and compliance times.
method Singular forward-backward stochastic differential equations (SDEs).
result Value function convergence to infinite period model under certain conditions.
A new model captures forward curve dynamics with stochastic volatility.
problem Modeling continuous-time evolution of forward curves in financial markets.
method Affine stochastic volatility model with modulated dynamics.
result Model allows for maturity-specific risk and volatility clustering.
Introduces new performance criteria for investment under distorted probabilities.
problem Reconciling time-consistent performance with probability distortions.
method Two definitions of forward rank-dependent criteria, equivalence established; characterization of viable probability distortion processes.
result Characterization of optimal wealth process and new distorted measure.
Algorithm optimizes electricity procurement costs by 1.65%.
problem Minimizing energy cost while covering forecast consumption.
method Deep learning forecasting and deviation indicator.
result Reduction of 1.65% in costs compared to uniform policy.
Paper uses neural networks to analyze oil price impact on Iranian stock and industry indices.
problem Impact of oil price volatility on Tehran stock and industry indices.
method Feed-forward neural networks analysis of two periods: sanctions and post-sanctions.
result Neural networks predict stock and industry indices well, showing significant oil price volatility impact.
Study time-inconsistent consumption-investment in incomplete markets with general discount functions.
problem Time-inconsistent consumption-investment problems in incomplete markets.
method Coupled forward-backward stochastic differential equation approach.
result Uniqueness of open-loop equilibrium pair proved.
In this paper, we establish a market model for the term structure of forward inflation rates based on the risk-neutral dynamics of nominal and real zero-coupon bonds. Under the market model, we can price inflation caplets as well as inflation swaptions with a formula similar to the Black's formula, thus justify the cur…
Wind energy producer optimizes trading policies using updated forecasts.
problem Maximizing profit from wind energy sales in various markets.
method Stochastic model for forecast evolution, dynamic trading policies.
result Quantifies expected future gain and forecasts' economic value.
Deep learning calibrates HJM forward curves for commodity options pricing.
problem Calibrating HJM forward curves for accurate option pricing in commodity markets.
method Introduced a neural network to approximate true option prices from model parameters, calibrated using observed option prices.
result Neural network calibration yields high accuracy in recovering option prices, even with model parameter approximation loss.
Established PFPPs in complete markets, solving integral equations.
problem Existence of Predictable Forward Performance Processes in complete markets.
method Solving a one-period integral equation using Fourier transform for tempered distributions.
result Closed-form solutions for PFPPs with inverse marginal functions that are completely monotonic.
This paper shows how forward rate interpolations are equivalent to discount factor interpolations in yield curve construction.
problem The challenge of choosing between different interpolation methods for yield curve construction.
method Demonstrates the equivalence between forward rate interpolations and discount factor interpolations.
result Some popular interpolation methods on forward rates are equivalent to classical interpolation methods on discount factors.