DYNAMIC CONIC FINANCE: PRICING AND HEDGING IN MARKET MODELS WITH TRANSACTION COSTS VIA DYNAMIC COHERENT ACCEPTABILITY INDICES

DOI10.1142/S0219024913500027MaRDI QIDQ4916239zbMATH OpenOpenAlexFDO

Authors Tomasz R. Bielecki, Igor Cialenco, Ismail Iyigunler, Rodrigo Marín Rodríguez

Publication date 22 April 2013

Published in International Journal of Theoretical and Applied Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1205.4790

zbMATH Keywords

arbitrage pricingtransaction costsilliquid marketfundamental theorems of asset pricingconic financedynamic coherent risk measuresswap contractsdynamic coherent acceptability indexdividend paying securitiesdynamic bid and askdynamic gain-loss rationo-good-deal bounds

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Microeconomic theory (price theory and economic markets) (91B24)

Abstract: In this paper we present a theoretical framework for determining dynamic ask and bid prices of derivatives using the theory of dynamic coherent acceptability indices in discrete time. We prove a version of the First Fundamental Theorem of Asset Pricing using the dynamic coherent risk measures. We introduce the dynamic ask and bid prices of a derivative contract in markets with transaction costs. Based on these results, we derive a representation theorem for the dynamic bid and ask prices in terms of dynamically consistent sequence of sets of probability measures and risk-neutral measures. To illustrate our results, we compute the ask and bid prices of some path-dependent options using the dynamic Gain-Loss Ratio.

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Cited in

(19)

• Dynamic bid-ask pricing under Dempster-Shafer uncertainty
• Acceptability indexes via \(g\)-expectations: an application to liquidity risk
• Short communication: utility-based acceptability indices
• Pricing American options by a Fourier transform multinomial tree in a conic market
• CONIC CVA AND DVA FOR OPTION PORTFOLIOS
• Conic portfolio theory
• Dynamic coherent acceptability indices and their applications to finance
• Star-shaped acceptability indexes
• Quantile hedging in a semi-static market with model uncertainty
• Dynamic conic finance via backward stochastic difference equations
• A unified approach to time consistency of dynamic risk measures and dynamic performance measures in discrete time
• Bid-ask dynamic pricing in financial markets with transaction costs and liquidity risk
• Deep signature FBSDE algorithm
• A survey of time consistency of dynamic risk measures and dynamic performance measures in discrete time: LM-measure perspective
• Conditional coherent risk measures and regime-switching conic pricing
• From bid-ask credit default swap quotes to risk-neutral default probabilities using distorted expectations
• Markets as a counterparty: an introduction to conic finance
• Dynamic quasi concave performance measures
• Acceptability maximization

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