arXiv subjects

Guiyuan Ma

Publications and source records attributed to Guiyuan Ma.

3 recordsLinked to original sources

arXiv2025

Pricing American options with exogenous and endogenous transaction costs

We study an American option pricing problem with liquidity risks and transaction fees. As endogenous transaction costs, liquidity risks of the underlying asset are modeled by a mean-reverting process. Transaction fees are exogenous transaction costs and are assumed to be proportional to the trading amount, with the long-run liquidity level depending on the proportional transaction costs rate. Two nonlinear partial differential equations are established to characterize the option values for the holder and the writer, respectively. To illustrate the impact of these transaction costs on option prices and optimal exercise prices, we apply the alternating direction implicit method to solve the linear complementarity problem numerically. Finally, we conduct model calibration from market data via maximum likelihood estimation, and find that our model incorporating liquidity risks outperforms the Leland model significantly.

q-fin.MF↗

arXiv2021

Valuation of contingent claims with short selling bans under an equal-risk pricing framework

This paper studies the valuation of European contingent claims with short selling bans under the equal risk pricing (ERP) framework proposed in Guo and Zhu (2017) where analytical pricing formulae were derived in the case of monotonic payoffs under risk-neutral measures. We establish a unified framework for this new pricing approach so that its range of application can be significantly expanded. The results of Guo and Zhu (2017) are extended to the case of non-monotonic payoffs (such as a butterfly spread option) under risk-neutral measures. We also provide numerical schemes for computing equal-risk prices under other measures such as the original physical measure. Furthermore, we demonstrate how short selling bans can affect the valuation of contingent claims by comparing equal-risk prices with Black-Scholes prices.

q-fin.MF↗

arXiv2020

Robust portfolio optimization with multi-factor stochastic volatility

This paper studies a robust portfolio optimization problem under the multi-factor volatility model introduced by Christoffersen et al. (2009). The optimal strategy is derived analytically under the worst-case scenario with or without derivative trading. To illustrate the effects of ambiguity, we compare our optimal robust strategy with some strategies that ignore the information of uncertainty, and provide the corresponding welfare analysis. The effects of derivative trading to the optimal portfolio selection are also discussed by considering alternative strategies. Our study is further extended to the cases with jump risks in asset price and correlated volatility factors, respectively. Numerical experiments are provided to demonstrate the behavior of the optimal portfolio and utility loss.

q-fin.MF↗