Pricing of Securities
We use deep partial least squares (DPLS) to estimate an asset pricing model for individual stock returns that exploits conditioning information in a flexible and dynamic way while attributing excess returns to a small set of statistical…
In industrial applications it is quite common to use stochastic volatility models driven by semi-martingale Markov volatility processes. However, in order to fit exactly market volatilities, these models are usually extended by adding a…
By expanding the Dirac delta function in terms of the eigenfunctions of the corresponding Sturm-Liouville problem, we construct some new (oscillating) integral transforms. These transforms are then used to solve various finance, physics,…
Path integral method in quantum mechanics provides a new thinking for barrier option pricing. For proportional step options, the option price changing process is similar to the one dimensional trapezoid potential barrier scattering problem…
In electricity markets, futures contracts typically function as a swap since they deliver the underlying over a period of time. In this paper, we introduce a market price for the delivery periods of electricity swaps, thereby opening an…
Two novel closed-form formulas for the price of barrier options in stochastic volatility models with zero interest rate and dividend yield but nonzero correlation between the asset and its instantaneous volatility are derived. The first is…
We analyze recently proposed mortgage contracts that aim to eliminate selective borrower default when the loan balance exceeds the house price (the ``underwater'' effect). We show contracts that automatically reduce the outstanding balance…
This paper introduces a dynamic change of measure approach for computing the analytical solutions of expected future prices (and therefore, expected returns) of contingent claims over a finite horizon. The new approach constructs hybrid…
We propose a general framework of European power option pricing under two different market assumptions about extended Vasic\v{e}k interest rate process and exponential Ornstein-Uhlenbeck asset process with continuous dividend as underlying,…
Abstract In this work, we build two environments, namely the modified QLBS and RLOP models, from a mathematics perspective which enables RL methods in option pricing through replicating by portfolio. We implement the environment…
Catastrophe (CAT) bond markets are incomplete and hence carry uncertainty in instrument pricing. As such various pricing approaches have been proposed, but none treat the uncertainty in catastrophe occurrences and interest rates in a…
We price American options using kernel-based approximations of the Volterra Heston model. We choose these approximations because they allow simulation-based techniques for pricing. We prove the convergence of American option prices in the…
In this paper, we derive closed-form formulas of first-order approximation for down-and-out barrier and floating strike lookback put option prices under a stochastic volatility model, by using an asymptotic approach. To find the explicit…
We introduce a new volatility model for option pricing that combines Markov switching with the Realized GARCH framework. This leads to a novel pricing kernel with a state-dependent variance risk premium and a pricing formula for European…
The shape of the futures term structure is essential to commodity hedgers and speculators as futures prices serve as a forecast of future spot prices. Commodity markets quotes futures prices on a selection of maturities and delivery…
Models to price long term loans in the securities lending business are developed. These longer horizon deals can be viewed as contracts with optionality embedded in them. This insight leads to the usage of established methods from…
The generic case of pensions fund that it is not sufficiently auto financed and it is thoroughly maintained with an external financing effort is considered in this chapter. To represent the unrestricted reserves value process of this kind…
This paper shows how to recover a stochastic volatility model (SVM) from a market model of the VIX futures term structure. Market models have more flexibility for fitting of curves than do SVMs, and therefore are better suited for pricing…
This paper introduces new valuation schemes called actuarial-consistent valuations for insurance liabilities which depend on both financial and actuarial risks, which imposes that all actuarial risks are priced via standard actuarial…
We study general properties such as the solution representation of a moving boundary value problem of the Black-Scholes equation, its min-max estimation, lower and upper gradient estimates, and strict monotonicity with respect to the…