Technical paper/Hedging
Joint S&P 500/VIX smile calibration in discrete and continuous time
An arbitrage-free model for exotic options that captures smiles and futures is presented
Dealing with multi-currency inventory risk in FX cash markets
A market-making model that considers correlation, transaction costs and market impact is presented
Pricing in the gap risk of mini-futures
Mini-futures need to be priced and hedged taking sudden jumps into account
Interpolating commodity futures prices with Kriging
A futures price’s term structure is built to account for trends and seasonality effects
Market-making by a foreign exchange dealer
An optimal liquidity model for pricing and hedging decisions is presented
A three-factor hazard rate model for single-name credit default swap pricing
The authors propose a reduced-form model in which the evolution of the risk-neutral hazard rate is driven by three risk factors.
Semi-analytic conditional expectations
A data-driven approach to computing expectations for the pricing and hedging of exotics
The future of skew
Forward start volatility swaps and their pricing and hedging models are introduced
Pricing barrier options with deep backward stochastic differential equation methods
This paper presents a novel and direct approach to solving boundary- and final-value problems, corresponding to barrier options, using forward pathwise deep learning and forward–backward stochastic differential equations.
Deep hedging: learning to remove the drift
Removing arbitrage opportunities from simulated data used for training makes deep hedging more robust
Dynamically controlled kernel estimation
An accurate data-driven and model-agnostic method to compute conditional expectations is presented
A Darwinian theory of model risk
An ex ante methodology is proposed to analyse the model risk pattern for a broad class of structures
The cost of hedging XVA
HVA is framed consistently with other valuation adjustments
Impact of hedging strategies on variable annuities
Put options may reduce the cost of hedging strategies for insurers
Optimal foreign exchange hedge tenor with liquidity risk
The authors develop an optimal currency hedging strategy that allows fund managers who own foreign assets to choose the hedge tenors that will maximize their foreign exchange carry returns within a liquidity risk constraint.
A verification model to capture option risk and hedging based on a modified underlying beta
This paper analyzes the relationship between option risk and expected return from the perspective of the underlying beta, and estimates the degree of correlation.
Hedging valuation adjustment: fact and friction
Transaction costs’ impact on hedging can now be quantified
Machine learning hedge strategy with deep Gaussian process regression
An optimal hedging strategy for options in discrete time using a reinforcement learning technique
Funding adjustments in equity linear products
How tax asymmetries and Tobin tax affect the pricing of total return swaps
Quantifying model performance
Quality of replicating portfolio is used to measure performance of a model
A new dynamic hedging model with futures
This paper proposes a new econometric model for the estimation of optimal hedge ratios (HRs): the Kalman filter error-correction model (KF–ECM).