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Neural optimal stopping boundary 神经优化停止边界
IF 1.6 3区 经济学
Mathematical Finance Pub Date : 2024-12-15 DOI: 10.1111/mafi.12450
Andres Max Reppen, Halil Mete Soner, Valentin Tissot-Daguette
{"title":"Neural optimal stopping boundary","authors":"Andres Max Reppen,&nbsp;Halil Mete Soner,&nbsp;Valentin Tissot-Daguette","doi":"10.1111/mafi.12450","DOIUrl":"https://doi.org/10.1111/mafi.12450","url":null,"abstract":"<p>A method based on deep artificial neural networks and empirical risk minimization is developed to calculate the boundary separating the stopping and continuation regions in optimal stopping. The algorithm parameterizes the stopping boundary as the graph of a function and introduces relaxed stopping rules based on fuzzy boundaries to facilitate efficient optimization. Several financial instruments, some in high dimensions, are analyzed through this method, demonstrating its effectiveness. The existence of the stopping boundary is also proved under natural structural assumptions.</p>","PeriodicalId":49867,"journal":{"name":"Mathematical Finance","volume":"35 2","pages":"441-469"},"PeriodicalIF":1.6,"publicationDate":"2024-12-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143638865","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Golden parachutes under the threat of accidents 事故威胁下的金降落伞
IF 1.6 3区 经济学
Mathematical Finance Pub Date : 2024-12-06 DOI: 10.1111/mafi.12448
Dylan Possamaï, Chiara Rossato
{"title":"Golden parachutes under the threat of accidents","authors":"Dylan Possamaï,&nbsp;Chiara Rossato","doi":"10.1111/mafi.12448","DOIUrl":"https://doi.org/10.1111/mafi.12448","url":null,"abstract":"<p>This paper addresses a continuous-time contracting model that extends Sannikov's problem. In our model, a principal hires a risk-averse agent to carry out a project. Specifically, the agent can perform two different tasks, namely to increase the instantaneous growth rate of the project's value, and to reduce the likelihood of accidents occurring. In order to compensate for these costly actions, the principal offers a continuous stream of payments throughout the entire duration of a contract, which concludes at a random time, potentially resulting in a lump-sum payment. We examine the consequences stemming from the introduction of accidents, modeled by a compound Poisson process that negatively impact the project's value. Furthermore, we investigate whether certain economic scenarii are still characterized by a golden parachute as in Sannikov's model. A golden parachute refers to a situation where the agent stops working and subsequently receives a compensation, which may be either a lump-sum payment leading to termination of the contract or a continuous stream of payments, thereby corresponding to a pension.</p>","PeriodicalId":49867,"journal":{"name":"Mathematical Finance","volume":"35 2","pages":"337-421"},"PeriodicalIF":1.6,"publicationDate":"2024-12-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143638923","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Measure-valued processes for energy markets 能源市场的计量值过程
IF 1.6 3区 经济学
Mathematical Finance Pub Date : 2024-12-06 DOI: 10.1111/mafi.12452
Christa Cuchiero, Luca Di Persio, Francesco Guida, Sara Svaluto-Ferro
{"title":"Measure-valued processes for energy markets","authors":"Christa Cuchiero,&nbsp;Luca Di Persio,&nbsp;Francesco Guida,&nbsp;Sara Svaluto-Ferro","doi":"10.1111/mafi.12452","DOIUrl":"https://doi.org/10.1111/mafi.12452","url":null,"abstract":"<p>We introduce a framework that allows to employ (non-negative) measure-valued processes for energy market modeling, in particular for electricity and gas futures. Interpreting the process' spatial structure as time to maturity, we show how the Heath–Jarrow–Morton approach can be translated to this framework, thus guaranteeing arbitrage free modeling in infinite dimensions, while allowing for the incorporation of important stylized facts, in particular stochastic discontinuities, that is, jumps or spikes at pre-specified (deterministic) dates. We derive an analog to the HJM-drift condition and then treat in a Markovian setting existence of non-negative measure-valued diffusions that satisfy this condition. To analyze mathematically convenient classes we consider measure-valued polynomial and affine diffusions, where we can precisely specify the diffusion part in terms of continuous functions satisfying certain admissibility conditions. For calibration purposes these functions can then be parameterized by neural networks yielding measure-valued analogs of neural SPDEs. By combining Fourier approaches or the moment formula with stochastic gradient descent methods, this then allows for tractable calibration procedures which we also test by way of example on market data.</p>","PeriodicalId":49867,"journal":{"name":"Mathematical Finance","volume":"35 2","pages":"520-566"},"PeriodicalIF":1.6,"publicationDate":"2024-12-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/mafi.12452","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143638924","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
The fundamental theorem of asset pricing with and without transaction costs 有交易成本和无交易成本的资产定价基本定理
IF 1.6 3区 经济学
Mathematical Finance Pub Date : 2024-12-06 DOI: 10.1111/mafi.12453
Christoph Kühn
{"title":"The fundamental theorem of asset pricing with and without transaction costs","authors":"Christoph Kühn","doi":"10.1111/mafi.12453","DOIUrl":"https://doi.org/10.1111/mafi.12453","url":null,"abstract":"<p>We prove a version of the fundamental theorem of asset pricing (FTAP) in continuous time that is based on the strict no-arbitrage condition and that is applicable to both frictionless markets and markets with proportional transaction costs. We consider a market with a single risky asset whose ask price process is higher than or equal to its bid price process. Neither the concatenation property of the set of wealth processes, that is used in the proof of the frictionless FTAP, nor some boundedness property of the trading volume of admissible strategies usually argued within models with a nonvanishing bid–ask spread need to be satisfied in our model.</p>","PeriodicalId":49867,"journal":{"name":"Mathematical Finance","volume":"35 2","pages":"567-609"},"PeriodicalIF":1.6,"publicationDate":"2024-12-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/mafi.12453","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143638925","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Joint SPX & VIX calibration with Gaussian polynomial volatility models: Deep pricing with quantization hints
IF 1.6 3区 经济学
Mathematical Finance Pub Date : 2024-11-20 DOI: 10.1111/mafi.12451
Eduardo Abi Jaber, Camille Illand, Shaun (Xiaoyuan) Li
{"title":"Joint SPX & VIX calibration with Gaussian polynomial volatility models: Deep pricing with quantization hints","authors":"Eduardo Abi Jaber,&nbsp;Camille Illand,&nbsp;Shaun (Xiaoyuan) Li","doi":"10.1111/mafi.12451","DOIUrl":"https://doi.org/10.1111/mafi.12451","url":null,"abstract":"<p>We consider the joint SPX &amp; VIX calibration within a general class of <i>Gaussian polynomial volatility models</i> in which the volatility of the SPX is assumed to be a polynomial function of a Gaussian Volterra process defined as a stochastic convolution between a kernel and a Brownian motion. By performing joint calibration to daily SPX &amp; VIX implied volatility surface data between 2011 and 2022, we compare the empirical performance of different kernels and their associated Markovian and non-Markovian models, such as rough and non-rough path-dependent volatility models. To ensure an efficient calibration and fair comparison between the models, we develop a generic unified method in our class of models for fast and accurate pricing of SPX &amp; VIX derivatives based on functional quantization and neural networks. For the first time, we identify a <i>conventional one-factor Markovian continuous stochastic volatility model</i> that can achieve remarkable fits of the implied volatility surfaces of the SPX &amp; VIX together with the term structure of VIX Futures. What is even more remarkable is that our <i>conventional one-factor Markovian continuous stochastic volatility model</i> outperforms, in all market conditions, its rough and non-rough path-dependent counterparts with the same number of parameters.</p>","PeriodicalId":49867,"journal":{"name":"Mathematical Finance","volume":"35 2","pages":"470-519"},"PeriodicalIF":1.6,"publicationDate":"2024-11-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143639206","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Do investors gain by selling the tails of return distributions?
IF 1.6 3区 经济学
Mathematical Finance Pub Date : 2024-10-17 DOI: 10.1111/mafi.12447
Gurdip Bakshi, John Crosby, Xiaohui Gao
{"title":"Do investors gain by selling the tails of return distributions?","authors":"Gurdip Bakshi,&nbsp;John Crosby,&nbsp;Xiaohui Gao","doi":"10.1111/mafi.12447","DOIUrl":"https://doi.org/10.1111/mafi.12447","url":null,"abstract":"<p>This paper examines whether investors gain by selling the tails of return distributions. To address this, we develop a way of ranking and scoring actively managed funds and investment strategies, which accounts for ambiguity aversion and risk aversion in decision-making. Using data relating to options on the S&amp;P 500 equity index and Treasury bond futures and to hedge funds, we provide evidence that suggests a negative answer to this question. We reinforce this evidence with data from options on the STOXX 50, FTSE, and Nikkei equity indices.</p>","PeriodicalId":49867,"journal":{"name":"Mathematical Finance","volume":"35 2","pages":"297-336"},"PeriodicalIF":1.6,"publicationDate":"2024-10-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143639056","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Tackling nonlinear price impact with linear strategies
IF 1.6 3区 经济学
Mathematical Finance Pub Date : 2024-10-15 DOI: 10.1111/mafi.12449
Xavier Brokmann, David Itkin, Johannes Muhle-Karbe, Peter Schmidt
{"title":"Tackling nonlinear price impact with linear strategies","authors":"Xavier Brokmann,&nbsp;David Itkin,&nbsp;Johannes Muhle-Karbe,&nbsp;Peter Schmidt","doi":"10.1111/mafi.12449","DOIUrl":"https://doi.org/10.1111/mafi.12449","url":null,"abstract":"<p>Empirical studies in various contexts find that the price impact of large trades approximately follows a power law with exponent between 0.4 and 0.7. Yet, tractable formulas for the portfolios that trade off predictive trading signals, risk, and trading costs in an optimal manner are only available for quadratic costs corresponding to linear price impact. In this paper, we show that the resulting linear strategies allow to achieve virtually optimal performance also for realistic nonlinear price impact, <i>if</i> the “effective” quadratic cost parameter is chosen appropriately. To wit, for a wide range of risk levels, this leads to performance losses below 2% compared to a numerical algorithm proposed by Kolm and Ritter, run at very high accuracy. The effective quadratic cost depends on the portfolio risk and concavity of the impact function, but can be computed without any sophisticated numerics by simply maximizing an explicit scalar function.</p>","PeriodicalId":49867,"journal":{"name":"Mathematical Finance","volume":"35 2","pages":"422-440"},"PeriodicalIF":1.6,"publicationDate":"2024-10-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/mafi.12449","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143638748","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Designing stablecoins 设计稳定币
IF 1.6 3区 经济学
Mathematical Finance Pub Date : 2024-08-29 DOI: 10.1111/mafi.12445
Yizhou Cao, Min Dai, Steven Kou, Lewei Li, Chen Yang
{"title":"Designing stablecoins","authors":"Yizhou Cao,&nbsp;Min Dai,&nbsp;Steven Kou,&nbsp;Lewei Li,&nbsp;Chen Yang","doi":"10.1111/mafi.12445","DOIUrl":"10.1111/mafi.12445","url":null,"abstract":"<p>Existing cryptocurrencies are too volatile to be used as currencies for daily payments. Stablecoins, which are cryptocurrencies pegged to other stable financial assets such as the US dollar, are desirable for payments within blockchain networks, whereby being often called the “Holy Grail of cryptocurrency.” By using the option pricing theory and the Ethereum platform that allows running smart contracts, we design several dual-class structures that are written on the ETH cryptocurrency and offer a fixed-income crypto asset (Class A coin), a stablecoin (Class A′ coin) pegged to a traditional currency, and leveraged investment instruments (Class B and B′ coins). Our investigation of the values of stablecoins in the presence of jump risk and black swan-type events shows the robustness of the design. The design has been implemented on the Ethereum platform.</p>","PeriodicalId":49867,"journal":{"name":"Mathematical Finance","volume":"35 1","pages":"263-294"},"PeriodicalIF":1.6,"publicationDate":"2024-08-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142195735","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Systemic risk in markets with multiple central counterparties 多个中央交易对手市场的系统风险
IF 1.6 3区 经济学
Mathematical Finance Pub Date : 2024-08-23 DOI: 10.1111/mafi.12446
Luitgard Anna Maria Veraart, Iñaki Aldasoro
{"title":"Systemic risk in markets with multiple central counterparties","authors":"Luitgard Anna Maria Veraart,&nbsp;Iñaki Aldasoro","doi":"10.1111/mafi.12446","DOIUrl":"10.1111/mafi.12446","url":null,"abstract":"<p>We provide a framework for modeling risk and quantifying payment shortfalls in cleared markets with multiple central counterparties (CCPs). Building on the stylized fact that clearing membership is shared among CCPs, we develop a modeling framework that captures the interconnectedness of CCPs and clearing members. We illustrate stress transmission mechanisms using simple examples as well as empirical evidence based on calibrated data. Furthermore, we show how stress mitigation tools such as variation margin gains haircutting by one CCP can have spillover effects on other CCPs. The framework can be used to enhance CCP stress-testing, which currently relies on the “Cover 2” standard requiring CCPs to be able to withstand the default of their two largest clearing members. We show that who these two clearing members are can be significantly affected if one considers higher-order effects arising from interconnectedness through shared clearing membership. Looking at the full network of CCPs and shared clearing members is, therefore, important from a financial stability perspective.</p>","PeriodicalId":49867,"journal":{"name":"Mathematical Finance","volume":"35 1","pages":"214-262"},"PeriodicalIF":1.6,"publicationDate":"2024-08-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/mafi.12446","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142195718","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Joint calibration to SPX and VIX options with signature-based models 利用基于签名的模型对 SPX 和 VIX 期权进行联合校准
IF 1.6 3区 经济学
Mathematical Finance Pub Date : 2024-07-31 DOI: 10.1111/mafi.12442
Christa Cuchiero, Guido Gazzani, Janka Möller, Sara Svaluto-Ferro
{"title":"Joint calibration to SPX and VIX options with signature-based models","authors":"Christa Cuchiero,&nbsp;Guido Gazzani,&nbsp;Janka Möller,&nbsp;Sara Svaluto-Ferro","doi":"10.1111/mafi.12442","DOIUrl":"10.1111/mafi.12442","url":null,"abstract":"<p>We consider a stochastic volatility model where the dynamics of the volatility are described by a linear function of the (time extended) signature of a primary process which is supposed to be a polynomial diffusion. We obtain closed form expressions for the VIX squared, exploiting the fact that the truncated signature of a polynomial diffusion is again a polynomial diffusion. Adding to such a primary process the Brownian motion driving the stock price, allows then to express both the log-price and the VIX squared as linear functions of the signature of the corresponding augmented process. This feature can then be efficiently used for pricing and calibration purposes. Indeed, as the signature samples can be easily precomputed, the calibration task can be split into an offline sampling and a standard optimization. We also propose a Fourier pricing approach for both VIX and SPX options exploiting that the signature of the augmented primary process is an infinite dimensional affine process. For both the SPX and VIX options we obtain highly accurate calibration results, showing that this model class allows to solve the joint calibration problem without adding jumps or rough volatility.</p>","PeriodicalId":49867,"journal":{"name":"Mathematical Finance","volume":"35 1","pages":"161-213"},"PeriodicalIF":1.6,"publicationDate":"2024-07-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141866751","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
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