20 research outputs found
An optimal Skorokhod embedding for diffusions
AbstractGiven a Brownian motion (Bt)t⩾0 and a general target law μ (not necessarily centered or even in L1) we show how to construct an embedding of μ in B. This embedding is an extension of an embedding due to Perkins, and is optimal in the sense that it simultaneously minimises the distribution of the maximum and maximises the distribution of the minimum among all embeddings of μ. The embedding is then applied to regular diffusions, and used to characterise the target laws for which a Hp-embedding may be found
Robust pricing and hedging of double no-touch options
Double no-touch options, contracts which pay out a fixed amount provided an
underlying asset remains within a given interval, are commonly traded,
particularly in FX markets. In this work, we establish model-free bounds on the
price of these options based on the prices of more liquidly traded options
(call and digital call options). Key steps are the construction of super- and
sub-hedging strategies to establish the bounds, and the use of Skorokhod
embedding techniques to show the bounds are the best possible.
In addition to establishing rigorous bounds, we consider carefully what is
meant by arbitrage in settings where there is no {\it a priori} known
probability measure. We discuss two natural extensions of the notion of
arbitrage, weak arbitrage and weak free lunch with vanishing risk, which are
needed to establish equivalence between the lack of arbitrage and the existence
of a market model.Comment: 32 pages, 5 figure
From minimal embeddings to minimal diffusions
There is a natural connection between the class of diffusions, and a certain
class of solutions to the Skorokhod Embedding Problem (SEP). We show that the
important concept of minimality in the SEP leads to the new and useful concept
of a minimal diffusion. Minimality is closely related to the martingale
property. A diffusion is minimal if it minimises the expected local time at
every point among all diffusions with a given distribution at an exponential
time. Our approach makes explicit the connection between the boundary
behaviour, the martingale property and the local time characteristics of
time-homogeneous diffusions
The joint law of the extrema, final value and signature of a stopped random walk
A complete characterization of the possible joint distributions of the
maximum and terminal value of uniformly integrable martingale has been known
for some time, and the aim of this paper is to establish a similar
characterization for continuous martingales of the joint law of the minimum,
final value, and maximum, along with the direction of the final excursion. We
solve this problem completely for the discrete analogue, that of a simple
symmetric random walk stopped at some almost-surely finite stopping time. This
characterization leads to robust hedging strategies for derivatives whose value
depends on the maximum, minimum and final values of the underlying asset
Utility theory front to back:Inferring utility from agents' choices
We pursue an inverse approach to utility theory and associated consumption and investment problems. Instead of specifying a utility function and deriving the actions of an agent, we assume that we observe the actions of the agent (i.e. consumption and investment strategies) and ask if it is possible to derive a utility function for which the observed behavior is optimal. We work in continuous time both in a deterministic and stochastic setting. In the deterministic setup, we find that there are infinitely many utility functions generating a given consumption pattern. In the stochastic setting of a geometric Brownian motion market it turns out that the consumption and investment strategies have to satisfy a consistency condition (PDE) if they are to come from a classical utility maximization problem. We show further that important characteristics of the agent such as risk attitudes (e.g., DARA) can be deduced directly from the agent's consumption and investment choices. </jats:p
Local time and the pricing of time-dependent barrier options
A time-dependent double-barrier option is a derivative security that delivers
the terminal value at expiry if neither of the continuous
time-dependent barriers b_\pm:[0,T]\to \RR_+ have been hit during the time
interval . Using a probabilistic approach we obtain a decomposition of
the barrier option price into the corresponding European option price minus the
barrier premium for a wide class of payoff functions , barrier functions
and linear diffusions . We show that the barrier
premium can be expressed as a sum of integrals along the barriers of
the option's deltas \Delta_\pm:[0,T]\to\RR at the barriers and that the pair
of functions solves a system of Volterra integral
equations of the first kind. We find a semi-analytic solution for this system
in the case of constant double barriers and briefly discus a numerical
algorithm for the time-dependent case.Comment: 32 pages, to appear in Finance and Stochastic
Robust pricing and hedging under trading restrictions and the emergence of local martingale models
Reducing the environmental impact of surgery on a global scale: systematic review and co-prioritization with healthcare workers in 132 countries
Background
Healthcare cannot achieve net-zero carbon without addressing operating theatres. The aim of this study was to prioritize feasible interventions to reduce the environmental impact of operating theatres.
Methods
This study adopted a four-phase Delphi consensus co-prioritization methodology. In phase 1, a systematic review of published interventions and global consultation of perioperative healthcare professionals were used to longlist interventions. In phase 2, iterative thematic analysis consolidated comparable interventions into a shortlist. In phase 3, the shortlist was co-prioritized based on patient and clinician views on acceptability, feasibility, and safety. In phase 4, ranked lists of interventions were presented by their relevance to high-income countries and low–middle-income countries.
Results
In phase 1, 43 interventions were identified, which had low uptake in practice according to 3042 professionals globally. In phase 2, a shortlist of 15 intervention domains was generated. In phase 3, interventions were deemed acceptable for more than 90 per cent of patients except for reducing general anaesthesia (84 per cent) and re-sterilization of ‘single-use’ consumables (86 per cent). In phase 4, the top three shortlisted interventions for high-income countries were: introducing recycling; reducing use of anaesthetic gases; and appropriate clinical waste processing. In phase 4, the top three shortlisted interventions for low–middle-income countries were: introducing reusable surgical devices; reducing use of consumables; and reducing the use of general anaesthesia.
Conclusion
This is a step toward environmentally sustainable operating environments with actionable interventions applicable to both high– and low–middle–income countries