This paper considers the problem of European option pricing in the presence of proportional transaction costs when the price of the underlying follows a jump diffusion process. Using an approach that is based on maximization of the expected utility of terminal wealth, we transform the option...

In typical robust portfolio selection problems, one mainly finds portfolios with the worst-case return under a given uncertainty set, in which asset returns can be realized. A too large uncertainty set will lead to a too conservative robust portfolio. However, if the given uncertainty set is not...

Realized divergence gauges the distinct realized moments associated with time-varying uncertainty and is tradeable with divergence swaps engineered from delta-hedged option portfolios. Consistently with established notions of symmetry in arbitrage-free option markets, implied divergence...

This paper introduces a set of lattice techniques with a view to accelerating computation time and improving the accuracy of American Option valuation. Estimation speed can be enhanced through developing a parsimonious early exercise boundary search routine combined with reliance on dynamic...

This article establishes the Poisson optional stopping times (POST) method by [22] as a near-universal method for solving liquidity-constrained American options, or, equivalently, penalised optimal-stopping problems. In this setup, the decision maker is permitted to "stop", i.e. exercise the...

This article establishes the Poisson optional stopping times (POST) method by Lange et al. (2020) as a near-universal method for solving liquidity-constrained American options, or, equivalently, penalised optimal-stopping problems. In this setup, the decision maker is permitted to “stop”,...

We study T. Cover's rebalancing option (Ordentlich and Cover 1998) under discrete hindsight optimization in continuous time. The payoff in question is equal to the final wealth that would have accrued to a $1 deposit into the best of some finite set of (perhaps levered) rebalancing rules...

How do financial markets switch from states of optimism to pessimism and vice versa? Given that a financial market is currently stable, what is the probability that it will become unstable and crash? We answer those questions in the context of a natural experiment with risk sources of...

We study the hedging problem for European-style options written on crude-oil futures. Locally risk-minimizing hedging strategies are derived under the assumption that the dynamics of crude-oil futures are described by a Merton-type jump-diffusion. These are then tested empirically using...

This paper proposes a new approach to solve finite-horizon optimal stopping problems for a class of Markov processes that includes one-dimensional diffusions, birth-and-death (BD) processes, and jump-diffusions and continuous-time Markov chains obtained by time changing diffusions and BD...