We propose a structural model of a financial institution that can invest in both liquid and illiquid assets. The goal of this firm is to maximize the profit of its shareholders, while satisfying some capital requirement and liquidity constraint. Using stochastic control techniques, we derive the...

We propose a pairs trading model that incorporates a time-varying volatility of the Constant Elasticity of Variance type. Our approach is based on stochastic control techniques; given a fixed time horizon and a portfolio of two cointegrated assets, we define the trading strategies as the...

Following a companion paper where we proposed a model of a financial institution that can invest in both liquid and illiquid assets and whose goal is to maximize the profit of its shareholders, while satisfying some capital and liquidity requirements, we now incorporate correlations between the...

Competition glider flying is a game of stochastic optimization, in which mathematics and quantitative strategies have historically played an important role. We address the problem of uncertain future atmospheric conditions by constructing a nonlinear Hamilton-Jacobi-Bellman equation for the...

I discuss in an elementary manner the practical aspects of designing monotone Finite Difference schemes for Hamilton-Jacobi-Bellman equations arising in Quantitative Finance. These are nonlinear equations for which classic Finite Difference methods may fail to converge to the correct solution....

We propose a framework for analyzing the credit risk of secured loans under historical probability. We assume that the collateral cannot be liquidated immediately. Closed-form solutions for the expected loss are obtained for non-revolving loans. In the revolving case, we introduce a minimization...

We study a stochastic control approach to managed futures portfolios. Building on the Schwartz (1997) stochastic convenience yield model for commodity prices, we formulate a utility maximization problem for dynamically trading a single-maturity futures or multiple futures contracts over a finite...

We study the problem of dynamically trading a pair of futures contracts. We consider a two-factor mean-reverting model, where the spot price tends to evolve around its stochastic equilibrium that is also mean-reverting. We derive the futures price dynamics and determine the optimal futures...

We study the problem of dynamically trading futures in continuous time under a multifactor Gaussian framework. We present a utility maximization approach to determine the optimal futures trading strategy. This leads to the explicit solution to the Hamilton-Jacobi-Bellman (HJB) equations. We...