arXiv subjects

Emilio Barucci

Publications and source records attributed to Emilio Barucci.

6 recordsLinked to original sources

arXiv2026

Pricing and Hedging Financial Derivatives in Merger\&Acquisition Deals with Price Impact

We investigate the optimal execution of contracts that are used in merger\&acquisition deals. We consider cash-settled and physically delivered contracts between a broker and a counterpart. Contracts are linear (total returns swaps), nonlinear (collar contracts) or Asian type (TWAP based contracts). We derive the optimal execution strategy and the optimal fee through indifference utility arguments allowing for linear market effects of trades. We show that linear cash-settled contracts are more expensive and more exposed to manipulation/statistical arbitrages by the broker. Also nonlinear and Asian type contracts are exposed to these phenomena.

q-fin.MF↗

arXiv2025

Central Bank Digital Currency, Flight-to-Quality, and Bank-Runs in an Agent-Based Model

We analyse financial stability and welfare impacts associated with the introduction of a Central Bank Digital Currency (CBDC) in a macroeconomic agent-based model. The model considers firms, banks, and households interacting on labour, goods, credit, and interbank markets. Households move their liquidity from deposits to CBDC based on the perceived riskiness of their banks. We find that the introduction of CBDC exacerbates bank-runs and may lead to financial instability phenomena. The effect can be changed by introducing a limit on CBDC holdings. The adoption of CBDC has little effect on macroeconomic variables but the interest rate on loans to firms goes up and credit goes down in a limited way. CBDC leads to a redistribution of wealth from firms and banks to households with a higher bank default rate. CBDC may have negative welfare effects, but a bound on holding enables a welfare improvement.

econ.GN↗

arXiv2025

Shortermism and excessive risk taking in optimal execution with a target performance

We deal with the optimal execution problem when the broker's goal is to reach a performance barrier avoiding a downside barrier. The performance is provided by the wealth accumulated by trading in the market, the shares detained by the broker evaluated at the market price plus a slippage cost yielding a quadratic inventory cost. Over a short horizon, this type of remuneration leads, at the same time, to a more aggressive and less risky strategy compared to the classical one, and over a long horizon the performance turns to be poorer and more dispersed.

q-fin.MF↗

arXiv2025

Sovereign Debt Default and Climate Risk

We explore the interplay between sovereign debt default/renegotiation and environmental factors (e.g., pollution from land use, natural resource exploitation). Pollution contributes to the likelihood of natural disasters and influences economic growth rates. The country can default on its debt at any time while also deciding whether to invest in pollution abatement. The framework provides insights into the credit spreads of sovereign bonds and explains the observed relationship between bond spread and a country's climate vulnerability. Through calibration for developing and low-income countries, we demonstrate that there is limited incentive for these countries to address climate risk, and the sensitivity of bond spreads to climate vulnerability remains modest. Climate risk does not play a relevant role on the decision to default on sovereign debt. Financial support for climate abatement expenditures can effectively foster climate adaptation actions, instead renegotiation conditional upon pollution abatement does not produce any effect.

econ.GN↗

arXiv2025

Market Making with Fads, Informed, and Uninformed Traders

We characterise the solution to a continuous-time optimal liquidity provision problem in a market populated by informed and uninformed traders. In our model, the asset price exhibits fads -- these are short-term deviations from the fundamental value of the asset. Conditional on the value of the fad, we model how informed traders and uninformed traders arrive in the market. The market maker is aware of the existence of the two groups of traders but only observes the anonymous order arrivals. We study both, the complete and the partial information versions of the control problem faced by the market maker. In such frameworks, we characterise the value of information, and we find the price of liquidity as a function of the proportion of informed traders in the market. We discuss how to calibrate model parameters from market data and we quantify the outperformance over strategies that ignore these unobservable short-term deviations.} Lastly, for the partial information setup, we explore how to go beyond the Kalman-Bucy filter to extract information about the fad from the market arrivals.

q-fin.TR↗

arXiv2024

Asset management with an ESG mandate

We investigate the portfolio frontier and risk premia in equilibrium when institutional investors aim to minimize the tracking error variance under an ESG score mandate. If a negative ESG premium is priced in the market, this mandate can reduce portfolio inefficiency when the return over-performance target is limited. In equilibrium, with asset managers endowed with an ESG mandate and mean-variance investors, a negative ESG premium arises. A result that is supported by empirical data. The negative ESG premium is due to the ESG constraint imposed on institutional investors and is not associated with a risk factor.

q-fin.PM↗