The paper provides a new hedging methodology permitting systematic hedging choices with wide applications. Dynamic concave bid price, and convex ask price functionals from the recent literature are employed to construct new hedging strategies termed dynamic conic hedging. The primary focus of...

Trading strategies are valued using non-linear conditional expectations with respect to non-additive probabilities in a discrete time Markovian context. Non-additive probabilities attain conservatism by exaggerating upwards tail loss events and exaggerating downwards tail gain events. Steady...

No arbitrage for two price economies with no locally risk free asset implies that suitably deflated prices are nonlinear martingales. However, both the deflating process and the measure change depend on the process being deflated. Further assumptions allow the nonlinear martingales in discrete...

Conic pricing (or bid and ask pricing) of credit risk shows how counterparty credit risk when conservatively valued at the bid price results in larger CVA than would occur under risk neutral pricing. On the other hand when it comes to the debt valuation adjustment, since it is a liability, it...

Multivariate return distributions consistent with bilateral gamma marginals are formulated and termed multivariate bilateral gamma (MBG). Tail probability distances and Wasserstein Distances between return data, model simulations and their squares evaluate model performance. A full Gaussian...

Financial returns at unit time are modeled as non-Gaussian limit laws. They may reflect random walks or additive processes reflecting some predictability. Mixtures of these two constructions are formulated and estimated on one minute data. It is observed that the random walk fraction is...

Market efficiency is measured by arbitrage proximity. The magnitude of probability distortion necessary to remove drift calibrates the efficiency. Simulations of bilateral gamma models estimated on a year's past returns yield empirical acceptability indices for each day for each asset. The...

Risk management is developed by using implied volatilities associated with a Laplacian base density as opposed to the normal distribution. Expressions are derived for all the Laplacian greeks. The Laplacian implied volatilities and greeks are compared with their Gaussian counterparts....

Summarizing option surfaces using parametric representations, their movements are decomposed into a number of effects. Arguments are presented for treating traditional sensitivity attribution terms as regression factors leading to significant attribution improvements

Instantaneous risk is described by the arrival rate of jumps in log price relatives. Aggregate arrivals are infinite. There is then no concept of a mean return compensating risk exposure. The only risk-free instantaneous return is zero. All portfolios are subject to risk and there are only bad...