We consider portfolios whose returns depend on at least three variables and show the e ect of the correlation structure on the probabilities of the extreme outcomes of the portfolio return, using a multivariate binomial approximation. The portfolio risk is then managed by using derivatives. We illustrate this risk management both with simple options, whose payo depends upon only one of the unde...

The need for investment in the improvement and expansion of the electric transmission grid has not been met in the new competitive environment. Investment in transmission assets poses demanding challenges: multiplicity of players, market imperfections, among others. The integration of financial instruments poses also an additional level of complication, because investors wish to ensure steady l...

The question of optimal strategic asset allocation for investors with behavioural utilities saving for retirement is addressed. To date this problem has been studied assuming that an investor is rational in the sense when making investment decisions the preference relation of the investor satisfies all the axioms of choice. Research in behavioural science indicates that investment related decis...

The paper is devoted to optimal superreplication of European options in the discrete setting under proportional transaction costs on the underlying asset. In particular, general pricing and hedging algorithms are developed. This extends previous work by many authors, which has been focused on the binomial tree model and options with specific payoffs such as calls or puts, often under certain bo...

under the risk-neutral measure. As usual rd denotes the domestic interest rate, rf the foreign interest rate, σ the volatility. The analysis we do is also applicable to equity options, but we take the foreign exchange market as Abstract: No front-office software can survive without providing derivatives of option prices with respect to underlying market or model parameters, the so called Greeks...

The Backward Stochastic Differential Equation (BSDE) is a robust tool for financial derivatives pricing and risk management. In this paper, we explore the opportunity for parallel computing with BSDEs in financial engineering. A binomial tree based numerical method for BSDEs is investigated and applied to option pricing. According to the special structure of the numerical model, we develop a bl...

In this paper we study different algorithms for reflected backward stochastic differential equations (BSDE in short) with two continuous barriers based on binomial tree framework. We introduce numerical algorithms by penalization method and reflected method respectively. In the end simulation results are also presented.