Category Archives: Working Papers

Dealing with the Inventory Risk

by Olivier Guéant, Charles-Albert Lehalle & Joaquin Fernandez Tapia Market makers have to continuously set bid and ask quotes for the stocks they have under consideration. Hence they face a complex optimization problem in which their return, based on the bid-ask … Continue reading

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From infinity to one: the reduction of some MFGs to planning problems

by Olivier Guéant This paper presents recent results from Mean Field Game theory underlying the intro- duction of common noise that imposes to incorporate the distribution of the agents as a state variable. Starting from the usual mean field games … Continue reading

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Stochastic Target Problems with Controlled Loss in Jump Diffusion Models

By Ludovic Moreau Stochastic Target Problems with Controlled Loss in Jump Diffusion Models In this paper, we consider a mixed diffusion version of the stochastic target problem introduced in [3]. This consists in finding the minimum initial value of a … Continue reading

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On a mean field game approach modeling congestion and aversion in pedestrian crowds

By Aimé Lachapelle & Marie-Therese Wolfram (Cahier de la Chaire n°40) In this paper we present a new class of pedestrian crowd models based on the mean field games theory introduced by Lasry and Lions in 2006. This macroscopic approach … Continue reading

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A class of DCC asymmetric GARCH models driven by exogenous variables

By Jean-Michel Zakoïan (Cahier de la Chaire n°39) This paper considers Dynamic Conditional Correlations (DCC) GARCH models in which the time-varying coefficients, including the conditional correlation matrix, are functions of the realizations of an exogenous stochastic process. Time series generated … Continue reading

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A structural risk-neutral model for pricing and hedging power derivatives

By René Aïd, Luciano Campi & Nicolas Langrené (Cahier de la Chaire n°38) We develop a structural risk-neutral model for energy market modifying along several directions the approach introduced in [Aïd et al., 2009]. In particular a scarcity function is … Continue reading

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Statistical properties of derivatives: a journey in term structures

By Delphine Lautier & Franck Raynaud (Cahier de la Chaire n°37) This article presents an empirical study of thirteen derivative markets for commodity and financial assets. This paper goes beyond statistical analysis by including the maturity as a variable for … Continue reading

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Detecting the Maximum of a Mean-Reverting Scalar Diffusion

By Gilles-Edouard Espinosa & Nizar Touzi (Cahier de la Chaire n°36) Let X be a mean reverting scalar process, X the corresponding running maximum, T0 the first time X hits the level zero and ` a loss function, mainly increasing and … Continue reading

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Large liquidity expansion of super-hedging costs

By Dylan Possamai, H. Mete Soner & Nizar Touzi (Cahier de la Chaire n°35) We consider a financial market with liquidity cost as in Cetin, Jarrow and Protter (2004) where the supply function  depends on a parameter  with  corresponding to … Continue reading

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Wellposedness of Second Order Backward SDEs

By H. Mete Soner, Nizar Touzi & Jianfeng Zhang (Cahier de la Chaire n°34) We provide an existence and uniqueness theory for an extension of backward SDEs to the second order. While standard Backward SDEs are naturally connected to semilinear … Continue reading

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Weak Dynamic Programming Principle for Viscosity Solutions

By Bruno Bouchard & Nizar Touzi (Cahier de la Chaire n°33) We prove a weak version of the dynamic programming principle for standard stochastic control problems and mixed control-stopping problems, which avoids the technical difficulties related to the measurable selection argument. In … Continue reading

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A Probabilistic Numerical Method for Fully Nonlinear Parabolic PDEs

By Arash Fahim, Nizar Touzi & Xavier Warin (Cahier de la Chaire n°32) We consider the probabilistic numerical scheme for fully nonlinear PDEs suggested in Cheridito et al (2007), and show that it can be introduced naturally as a combination of … Continue reading

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Familiarity Breeds Institutional Investment: Evidence from US Defined Benefit Pension Plans

by Christina Atanasova & Gilles Chemla (Cahier de la Chaire n°31) This paper provides new evidence that familiarity bias affects the portfolios ofinstitutional investors. Using a sample of large US defined-benefit pension plans for the period1992 to 2002, we show … Continue reading

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On the Monte Carlo simulation of BSDEs: An improvement on the Malliavin weights

By D. Crisan, K. Manolarakis & N. Touzi (Cahier de la Chaire n°30) We propose a generic framework for the analysis of Monte Carlo simulation schemes of backward SDEs. The general results are used to re-visit the convergence of the … Continue reading

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Stochastic Target Problems with Controlled Loss

By Bruno Bouchard, Romuald Elie & Nizar Touzi (Cahier de la Chaire n°29) We consider the problem of finding the minimal initial data of a controlled process which guarantees to reach a controlled target with a given probability of success or, … Continue reading

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Privately Optimal Securitization and Publicly Suboptimal Risk Sharing

By Gilles Chemla & Christopher A. Hennessy (Cahier de la Chaire n°28) Privately informed owners securitizing assets signal positive information by retaining sufficient interest. Signaling provides social bene…fits, allowing uninformed investors to insure without fearing adverse selection. Instead of signaling, owners … Continue reading

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Discounting the Future: The Case of Climate Change

By Ivar Ekeland (Cahier de la Chaire n°27) According to the Stern Report on climate change, the course of the next fifty years is set: present policies will impact only in the very long term, fifty to two hundred years … Continue reading

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Strategic Capacity Investment under Holdup Threats: The Role of Contract Length and Width

by Laure Durand-Viel & Bertrand Villeneuve (Cahier de la Chaire n°26) This article analyzes the impact of incomplete contracts’ length on investment in a bilateral relationship. The seller has the power to set the contract terms whereas the buyer decides … Continue reading

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A conditionally heteroskedastic model with time-varying coefficients for daily gas spot prices

by Nazim Regnard and Jean-Michel Zakoïan (Cahier de la Chaire n°25) A novel GARCH(1,1) model, with coefficients function of the realizations of an exogenous process, is considered for the volatility of daily gas prices. A distinctive feature of the model … Continue reading

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A structural risk-neutral model of electricity

by René Aïd, Luciano Campi, Adrien Nguyen Huu and Nizar Touzi (Cahier de la Chaire n°24) The objective of this paper is to present a model for electricity spot prices and the corresponding forward contracts, which relies on the underlying … Continue reading

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