arXiv subjects

Emmanuel Lepinette

Publications and source records attributed to Emmanuel Lepinette.

12 recordsLinked to original sources

arXiv2025

Explicit Recursive Construction of Super-Replication Prices under Proportional Transaction Costs

We propose a constructive framework for the super-hedging problem of a European contingent claim under proportional transaction costs in discrete time. Our main contribution is an explicit recursive scheme that computes both the super-hedging price and the corresponding optimal strategy without relying on martingale arguments. The method is based on convex duality and a distorted Legendre--Fenchel transform, ensuring both tractability and convexity of the value functions. A numerical implementation on real market data illustrates the practical relevance of the proposed approach.

q-fin.MF↗

arXiv2024

Conditional indicators

In this paper, we introduce a large class of (so-called) conditional indicators, on a complete probability space with respect to a sub $σ$-algebra. A conditional indicator is a positive mapping, which is not necessary linear, but may share common features with the conditional expectation, such as the tower property or the projection property. Several characterizations are formulated. Beyond the definitions, we provide some non trivial examples that are used in finance and may inspire new developments in the theory of operators on Riesz spaces.

math.PR↗

arXiv2024

No-arbitrage conditions and pricing from discrete-time to continuous-time strategies

In this paper, a general framework is developed for continuous-time financial market models defined from simple strategies through conditional topologies that avoid stochastic calculus and do not necessitate semimartingale models. We then compare the usual no-arbitrage conditions of the literature, e.g. the usual no-arbitrage conditions NFL, NFLVR and NUPBR and the recent AIP condition. With appropriate pseudo-distance topologies, we show that they hold in continuous time if and only if they hold in discrete time. Moreover, the super-hedging prices in continuous time coincide with the discrete-time super-hedging prices, even without any no-arbitrage condition.

q-fin.PR↗

arXiv2024

Dynamic programming principle and computable prices in financial market models with transaction costs

How to compute (super) hedging costs in rather general fi- nancial market models with transaction costs in discrete-time ? Despite the huge literature on this topic, most of results are characterizations of the super-hedging prices while it remains difficult to deduce numerical procedure to estimate them. We establish here a dynamic programming principle and we prove that it is possible to implement it under some conditions on the conditional supports of the price and volume processes for a large class of market models including convex costs such as order books but also non convex costs, e.g. fixed cost models.

math.PR↗

arXiv2024

Coherent Risk Measure on $L^0$: NA Condition, Pricing and Dual Representation

The NA condition is one of the pillars supporting the classical theory of financial mathematics. We revisit this condition for financial market models where a dynamic risk-measure defined on $L^0$ is fixed to characterize the family of acceptable wealths that play the role of non negative financial positions. We provide in this setting a new version of the fundamental theorem of asset pricing and we deduce a dual characterization of the super-hedging prices (called risk-hedging prices) of a European option. Moreover, we show that the set of all risk-hedging prices is closed under NA. At last, we provide a dual representation of the risk-measure on $L^0$ under some conditions.

q-fin.RM↗

arXiv2024

Super-hedging-pricing formulas and Immediate-Profit arbitrage for market models under random horizon

In this paper, we consider the discrete-time setting, and the market model described by (S,F,T)$. Herein F is the ``public" flow of information which is available to all agents overtime, S is the discounted price process of d-tradable assets, and T is an arbitrary random time whose occurrence might not be observable via F. Thus, we consider the larger flow G which incorporates F and makes T an observable random time. This framework covers the credit risk theory setting, the life insurance setting and the setting of employee stock option valuation. For the stopped model (S^T,G) and for various vulnerable claims, based on this model, we address the super-hedging pricing valuation problem and its intrinsic Immediate-Profit arbitrage (IP hereafter for short). Our first main contribution lies in singling out the impact of change of prior and/or information on conditional essential supremum, which is a vital tool in super-hedging pricing. The second main contribution consists of describing as explicit as possible how the set of super-hedging prices expands under the stochasticity of T and its risks, and we address the IP arbitrage for (S^T,G) as well. The third main contribution resides in elaborating as explicit as possible pricing formulas for vulnerable claims, and singling out the various informational risks in the prices' dynamics.

q-fin.MF↗

arXiv2023

Robust discrete-time super-hedging strategies under AIP condition and under price uncertainty

We solve the problem of super-hedging European or Asian options for discrete-time financial market models where executable prices are uncertain. The risky asset prices are not described by single-valued processes but measurable selections of random sets that allows to consider a large variety of models including bid-ask models with order books, but also models with a delay in the execution of the orders. We provide a numerical procedure to compute the infimum price under a weak no-arbitrage condition, the so-called AIP condition, under which the prices of the non negative European options are non negative. This condition is weaker than the existence of a risk-neutral martingale measure but it is sufficient to numerically solve the super-hedging problem. We illustrate our method by a numerical example.

q-fin.PR↗

arXiv2023

A short note on super-hedging an arbitrary number of European options with integer-valued strategies

The usual theory of asset pricing in finance assumes that the financial strategies, i.e. the quantity of risky assets to invest, are real-valued so that they are not integer-valued in general, see the Black and Scholes model for instance. This is clearly contrary to what it is possible to do in the real world. Surprisingly, it seems that there is no many contributions in that direction in the literature, except for a finite number of states. In this paper, for arbitrary Ω, we show that, in discrete-time, it is possible to evaluate the minimal super-hedging price when we restrict ourselves to integer-valued strategies. To do so, we only consider terminal claims that are continuous piecewise affine functions of the underlying asset. We formulate a dynamic programming principle that can be directly implemented on an historical data and which also provides the optimal integer-valued strategy. The problem with general payoffs remains open but should be solved with the same approach.

q-fin.PR↗

arXiv2020

Risk Arbitrage and Hedging to Acceptability under Transaction Costs

The classical discrete time model of proportional transaction costs relies on the assumption that a feasible portfolio process has solvent increments at each step. We extend this setting in two directions, allowing for convex transaction costs and assuming that increments of the portfolio process belong to the sum of a solvency set and a family of multivariate acceptable positions, e.g. with respect to a dynamic risk measure. We describe the sets of superhedging prices, formulate several no (risk) arbitrage conditions and explore connections between them. In the special case when multivariate positions are converted into a single fixed asset, our framework turns into the no good deals setting. However, in general, the possibilities of assessing the risk with respect to any asset or a basket of the assets lead to a decrease of superhedging prices and the no arbitrage conditions become stronger. The mathematical technique relies on results for unbounded and possibly non-closed random sets in Euclidean space.

q-fin.MF↗

arXiv2017

Conditional cores and conditional convex hulls of random sets

We define two non-linear operations with random (not necessarily closed) sets in Banach space: the conditional core and the conditional convex hull. While the first is sublinear, the second one is superlinear (in the reverse set inclusion ordering). Furthermore, we introduce the generalised conditional expectation of random closed sets and show that it is sandwiched between the conditional core and the conditional convex hull. The results rely on measurability properties of not necessarily closed random sets considered from the point of view of the families of their selections. Furthermore, we develop analytical tools suitable to handle random convex (not necessarily compact) sets in Banach spaces; these tools are based on considering support functions as functions of random arguments. The paper is motivated by applications to assessing multivariate risks in mathematical finance.

math.PR↗

arXiv2013

Robust no-free lunch with vanishing risk, a continuum of assets and proportional transaction costs

We propose a continuous time model for financial markets with proportional transactions costs and a continuum of risky assets. This is motivated by bond markets in which the continuum of assets corresponds to the continuum of possible maturities. Our framework is well adapted to the study of no-arbitrage properties and related hedging problems. In particular, we extend the Fundamental Theorem of Asset Pricing of Guasoni, Rásonyi and Lépinette (2012) which concentrates on the one dimensional case. Namely, we prove that the Robust No Free Lunch with Vanishing Risk assumption is equivalent to the existence of a Strictly Consistent Price System. Interestingly, the presence of transaction costs allows a natural definition of trading strategies and avoids all the technical and un-natural restrictions due to stochastic integration that appear in bond models without friction. We restrict to the case where exchange rates are continuous in time and leave the general càdlàg case for further studies.

q-fin.PR↗

arXiv2012

Large Financial Markets and Asymptotic Arbitrage with Small Transaction Costs

We give characterizations of asymptotic arbitrage of the first and second kind and of strong asymptotic arbitrage for large financial markets with small proportional transaction costs $\la_n$ on market $n$ in terms of contiguity properties of sequences of equivalent probability measures induced by $\la_n$--consistent price systems. These results are analogous to the frictionless case. Our setting is simple, each market $n$ contains two assets with continuous price processes. The proofs use quantitative versions of the Halmos--Savage Theorem and a monotone convergence result of nonnegative local martingales. Moreover, we present an example admitting a strong asymptotic arbitrage without transaction costs; but with transaction costs $\la_n>0$ on market $n$ ($\la_n\to0$ not too fast) there does not exist any form of asymptotic arbitrage.

q-fin.PR↗