Pathwise super-replication via Vovk's outer measure

Since Hobson's seminal paper [D. Hobson: Robust hedging of the lookback option. In: Finance Stoch. (1998)] the connection between model-independent pricing and the Skorokhod embedding problem has been a driving force in robust finance. We establish a general pricing-hedging duality for financial derivatives which are susceptible to the Skorokhod approach. Using Vovk's approach to mathematical finance we derive a model-independent super-replication theorem in continuous time, given information on finitely many marginals. Our result covers a broad range of exotic derivatives, including lookback options, discretely monitored Asian options, and options on realized variance.Comment: 18 page

Options fever

Options (Finance)

Pricing debt instruments: the options approach

Options (Finance)

From Black-Scholes to Online Learning: Dynamic Hedging under Adversarial Environments

We consider a non-stochastic online learning approach to price financial options by modeling the market dynamic as a repeated game between the nature (adversary) and the investor. We demonstrate that such framework yields analogous structure as the Black-Scholes model, the widely popular option pricing model in stochastic finance, for both European and American options with convex payoffs. In the case of non-convex options, we construct approximate pricing algorithms, and demonstrate that their efficiency can be analyzed through the introduction of an artificial probability measure, in parallel to the so-called risk-neutral measure in the finance literature, even though our framework is completely adversarial. Continuous-time convergence results and extensions to incorporate price jumps are also presented

Options on economic data

Options (Finance) ; Economic forecasting

Pricing mortgages: an options approach

Mortgages ; Options (Finance) ; Prices

Have large banks become riskier? recent evidence from option markets

Options (Finance) ; Risk ; Banks and banking

Instruments of the money market (foreword)

Money market ; Federal funds market (United States) ; Discount window ; Certificates of deposit ; Euro-dollar market ; Repurchase agreements ; Treasury bills ; Municipal finance ; Commercial paper issues ; Acceptances ; Government securities ; Money market funds ; Futures ; Options (Finance)

Expensing stock options

Many market commentators argue that companies should expense the stock options they give their employees. Will expensing give investors better information about what companies earn and spend?Stock options ; Corporations - Finance ; Accounting

Dealers' hedging of interest rate options in the U.S. dollar fixed-income market

Despite investors' willingness to hold a variety of financial assets and risks, a significant share of interest rate options exposures remains in the hands of dealers. This concentration of risk makes the interest rate options market an ideal place to explore the effects of dealers' dynamic hedging on underlying markets. Using data from a global survey of derivatives dealers and other sources, this article estimates the potential impact of dynamic hedging by interest rate options dealers on the fixed-income market. The author finds that for short-term maturities, turnover volume in the most liquid hedging instruments is more than large enough to absorb dealers' dynamic hedges. For medium-term maturities, however, an unusually large interest rate shock could lead to hedging difficulties.Hedging (Finance) ; Options (Finance)