arXiv research

Investor optimizes wealth in a market with non-traded endowment, deriving expansions up to second order.

We consider two risk-averse financial agents who negotiate the price of an illiquid indivisible contingent claim in an incomplete semimartingale market environment. Under the assumption that the agents are exponential utility maximizers with non-traded random endowments, we provide necessary and sufficient conditions f…

We consider a general local-stochastic volatility model and an investor with exponential utility. For a European-style contingent claim, whose payoff may depend on either a traded or non-traded asset, we derive an explicit approximation for both the buyer's and seller's indifference price. For European calls on a trade…

In this paper, we propose an equilibrium pricing model in a dynamic multi-period stochastic framework with uncertain income streams. In an incomplete market, there exist two traded risky assets (e.g. stock/commodity and weather derivative) and a non-traded underlying (e.g. temperature). The risk preferences are of expo…

We use a continuous version of the standard deviation premium principle for pricing in incomplete equity markets by assuming that the investor issuing an unhedgeable derivative security requires compensation for this risk in the form of a pre-specified instantaneous Sharpe ratio. First, we apply our method to price opt…

Real life hedging in the Black-Scholes model must be imperfect and if the stock's drift is higher than the risk free rate, leads to a profit on average. Hence the option price is examined as a fair game agreement between the parties, based on expected payoffs and a simple measure of risk. The resulting prices result in…

This paper considers exponential utility indifference pricing for a multidimensional non-traded assets model, and provides two linear approximations for the utility indifference price. The key tool is a probabilistic representation for the utility indifference price by the solution of a functional differential equation…

We study option pricing and hedging with uncertainty about a Black-Scholes reference model which is dynamically recalibrated to the market price of a liquidly traded vanilla option. For dynamic trading in the underlying asset and this vanilla option, delta-vega hedging is asymptotically optimal in the limit for small u…

This paper considers exponential utility indifference pricing for a multidimensional non-traded assets model subject to inter-temporal default risk, and provides a semigroup approximation for the utility indifference price. The key tool is the splitting method, whose convergence is proved based on the Barles-Souganidis…

We model bond's price curves corresponding to the sovereign uruguayan debt nominated in USD, as an alternative to the official bond prices publication released by the Central Bank of Uruguay (CBU). Four different gaussian models are fitted, based on historical data issued by the CBU, corresponding to some of the more f…

This work focuses on the indifference pricing of American call option underlying a non-traded stock, which may be partially hedgeable by another traded stock. Under the exponential forward measure, the indifference price is formulated as a stochastic singular control problem. The value function is characterized as the …

We analyze realized volatilities constructed using high-frequency stock data on the Tokyo Stock Exchange. In order to avoid non-trading hours issue in volatility calculations we define two realized volatilities calculated separately in the two trading sessions of the Tokyo Stock Exchange, i.e. morning and afternoon ses…

We consider the problem of the optimal trading strategy in the presence of linear costs, and with a strict cap on the allowed position in the market. Using Bellman's backward recursion method, we show that the optimal strategy is to switch between the maximum allowed long position and the maximum allowed short position…

We calculate realized volatility of the Nikkei Stock Average (Nikkei225) Index on the Tokyo Stock Exchange and investigate the return dynamics. To avoid the bias on the realized volatility from the non-trading hours issue we calculate realized volatility separately in the two trading sessions, i.e. morning and afternoo…

Derives explicit investment strategy with random endowment.

New framework for portfolio management using binomial markets and game theory.

Study variance-optimal hedging of forward curve derivatives under stochastic volatility.

In this paper we ask whether, given a stock market and an illiquid derivative, there exists arbitrage-free prices at which an utility-maximizing agent would always want to buy the derivative, irrespectively of his own initial endowment of derivatives and cash. We prove that this is false for any given investor if one c…

In this paper, we study the problem of expected utility maximization of an agent who, in addition to an initial capital, receives random endowments at maturity. Contrary to previous studies, we treat as the variables of the optimization problem not only the initial capital but also the number of units of the random end…

We study utility indifference prices and optimal purchasing quantities for a non-traded contingent claim in an incomplete semi-martingale market with vanishing hedging errors. We make connections with the theory of large deviations. We concentrate on sequences of semi-complete markets where in the $n^{th}$ market, the …

New method for dynamic valuation in markets with random endowments.

We prove that the group D^r(R) of C^r diffeomorphisms of the real line, endowed with the compact-open and Whitney C^r topologies, is bihomeomorphic to the group H(R) of homeomorphisms of the real line endowed with the compact-open and Whitney topologies. This implies that the diffeomorphism group D^r(R) endowed with th…

In this paper, we introduce canonical principal direction (CPD) submanifolds with higher codimension in Euclidean spaces. We obtain the complete classification of surfaces endowed with CPD in the Euclidean 4-space.

We consider a problem of optimal investment with intermediate consumption and random endowment in an incomplete semimartingale model of a financial market. We establish the key assertions of the utility maximization theory assuming that both primal and dual value functions are finite in the interiors of their domains a…

The subject of this paper is an optimal consumption/optimal portfolio problem with transaction costs and with multiple risky assets. In our model the transaction costs take a special form in that transaction costs on purchases of one of the risky assets (the endowed asset) are infinite, and transaction costs involving …

In this paper we study the problem of maximizing expected utility from the terminal wealth with proportional transaction costs and random endowment. In the context of the existence of consistent price systems, we consider the duality between the primal utility maximization problem and the dual one, which is set up on t…

In this paper, we consider a numéraire-based utility maximization problem under constant proportional transaction costs and random endowment. Assuming that the agent cannot short sell assets and is endowed with a strictly positive contingent claim, a primal optimizer of this utility maximization problem exists. Moreove…

We prove that for any non-compact connected surface $M$ the group $H_c(M)$ of compactly suported homeomorphisms of $M$ endowed with the Whitney topology is homeomorphic to $R^\infty\times l_2$ or $Z\times R^\infty\times l_2$.

Entropy based ideas find wide-ranging applications in finance for calibrating models of portfolio risk as well as options pricing. The abstracted problem, extensively studied in the literature, corresponds to finding a probability measure that minimizes relative entropy with respect to a specified measure while satisfy…

Study on hedging and valuation of basis risk in incomplete markets with partial information.

We study the J-invariant and J-anti-invariant cohomological subgroups of the de Rham cohomology of a compact manifold M endowed with an almost-Kähler structure (J, ω, g). In particular, almost-Kähler manifolds satisfying a Lefschetz type property, and solvmanifolds endowed with left-invariant almost-complex structures …

Study of minimal surfaces in 3D space with special connections.

Since their introduction by Thurston, geodesic laminations on hyperbolic surfaces occur in many contexts. In this paper, we propose a generalization of geodesic laminations on locally CAT(0), complete, geodesic metric spaces, whose boundary at infinity of the universal cover is endowed with a invariant total cyclic ord…

Given the Euclidean space $\R^{2n+2}$ endowed with a constant symplectic structure and the standard flat connection, and given a polynomial of degree 2 on that space, Baguis and Cahen have defined a reduction procedure which yields a symplectic manifold endowed with a Ricci-type connection. We observe that any symplect…

In recent years, a market for mortality derivatives began developing as a way to handle systematic mortality risk, which is inherent in life insurance and annuity contracts. Systematic mortality risk is due to the uncertain development of future mortality intensities, or {\it hazard rates}. In this paper, we develop a …

A hermitian algebra is a unital associative ${\mathbb C}$-algebra endowed with an involution such that the spectra of self-adjoint elements are contained in ${\mathbb R}$. In the case of an algebra ${\mathcal A}$ endowed with a Mackey-complete, locally convex topology such that the set of invertible elements is open an…

Study describes isometry groups of specific Lie groups.

Study on geodesics in Kropina metrics with applications.

In this paper we deal with some properties of a class of semi-Riemannian submersions between manifolds endowed with paraquaternionic structures, proving a result of non-existence of paraquaternionic submersions between paraquaternionic Kähler non locally hyper paraKähler manifolds. Then we examine, as an example, the c…

We consider the robust exponential utility maximization problem in discrete time: An investor maximizes the worst case expected exponential utility with respect to a family of nondominated probabilistic models of her endowment by dynamically investing in a financial market, and statically in available options. We show …

We study the automorphism group of a compact 7-manifold $M$ endowed with a closed non-parallel G$_2$-structure, showing that its identity component is abelian with dimension bounded by min$\{6,b_2(M)\}$. This implies the non-existence of compact homogeneous manifolds endowed with an invariant closed non-parallel G$_2$-…

Dynamic pricing model considers ambiguity in endowment growth rate.

The paper studies affine manifolds with linear foliations and their topological properties.

We provide the complete classification of seven-dimensional manifolds endowed with a closed non-parallel G$_2$-structure and admitting a transitive reductive group G of automorphisms. In particular, we show that the center of G is one-dimensional and the manifold is the Riemannian product of a flat factor and a non-com…

We study the geometry of a family of Lie groups, which contained the classical affine Lie groups, endowed with an exact left invariant symplectic form. We show that this family is closed by symplectic reduction and symplectic double extension in the sense of Dardié and Medina. We prouve also that these groups are endow…

Let (M,w,L) be a symplectic manifold endowed with a lagrangian foliation L. Liberman and Weinstein have shown that the leaves of L are endowed with an affine structure. In this paper we provide links between the theories of affine manifolds and symplectic geometry. Using the work of Donaldson who have shown the existen…

This paper studies the utility maximization on the terminal wealth with random endowments and proportional transaction costs. To deal with unbounded random payoffs from some illiquid claims, we propose to work with the acceptable portfolios defined via the consistent price system (CPS) such that the liquidation value p…

In this paper we present formulas for the valuation of debt and equity of firms in a financial network under comonotonic endowments. We demonstrate that the comonotonic setting provides a lower bound and Jensen's inequality provides an upper bound to the price of debt under Eisenberg-Noe financial networks with bankrup…