We consider the problem of hedging a European contingent claim in a Bachelier model with transient price impact as proposed by Almgren and Chriss. Following the approach of Rogers and Singh [24] and Naujokat and Westray, the hedging problem can be regarded as a cost optimal tracking problem of...

We solve a model of firm dynamics with two states: cash and capital. The model high- lights how costly financing and default affect a firm’s cash management, investment, payout, and issuance policies. We find support in the data for new predictions: (1) issuance-to-capital ratios are...

We study interactions between cryptocurrency trading venues, traders, and taxation in which the venues differ in technology (fast vs. slow). The property distinguishing this market from other markets like equities is the fact that each venue clears trades separately from one another. We show...

How do firms manage recession risks? We solve a dynamic model with stochastic transitioning between recessions and expansions. In recessions, cash flows decline, cash-flow volatility increases, and both default and external financing costs increase. Firms manage the possibility of future...

We consider the problem of option hedging in a market with proportional transaction costs. Since super-replication is very costly in such markets, we replace perfect hedging with an expected loss constraint. Asymptotic analysis for small transactions is used to obtain a tractable model. A...