"Since he already paid and I hold the nights for him I cannot cancel this booking and refund him his money."
I'm not sure where you got this idea- you can cancel a guest for poor behavior and refund him for nights he has paid for if you want. You would have to contact Airbnb and explain the situation, and ask them to do a neutral cancellation so you are not penalized for it. Or you can ask them to contact the guest to tell him that he has to abide by your house rules (or whatever the issue is) , and tell Airbnb that if he ignores that, you will want the rest of the booking cancelled without penalties to you, but you are willing to give the guest a chance to comply.
Can you tell us what the issues are with this guest? Other hosts may have suggestions as to how to handle this guest if we know what he is doing to make your life miserable.
@Salima7