UC Santa Barbara

We propose two models to study different aspects of delay in financial markets. In the first model, we discuss option pricing with delayed information. We study super replication with delayed information in a discrete model and derive its continuous limit. In the second model, we discuss systemic risk using a finite-player linear-quadratic stochastic differential game with delay, where the evolution of log-monetary reserves of banks is described by coupled diffusions driven by controls with delay in their drifts, and banks are minimizing their finite-horizon objective functions.