Pricing of Securities
In this paper we develop a semi-closed form solutions for the barrier (perhaps, time-dependent) and American options written on the underlying stock which follows a time-dependent OU process with a log-normal drift. This model is equivalent…
We construct a data-driven statistical indicator for quantifying the tail risk perceived by the EURGBP option market surrounding Brexit-related events. We show that under lognormal SABR dynamics this tail risk is closely related to the…
We consider the problem of seeking an optimal set of model points associated to a fixed portfolio of life insurance policies. Such an optimal set is characterized by minimizing a certain risk functional, which gauges the average discrepancy…
In a market with a rough or Markovian mean-reverting stochastic volatility there is no perfect hedge. Here it is shown how various delta-type hedging strategies perform and can be evaluated in such markets in the case of European options. A…
We introduce an arbitrage-free framework for robust valuation adjustments. An investor trades a credit default swap portfolio with a risky counterparty, and hedges credit risk by taking a position in defaultable bonds. The investor does not…
We develop a framework for computing the total valuation adjustment (XVA) of a European claim accounting for funding costs, counterparty credit risk, and collateralization. Based on no-arbitrage arguments, we derive backward stochastic…
Volatility clustering, long-range dependence, and non-Gaussian scaling are stylized facts of financial assets dynamics. They are ignored in the Black & Scholes framework, but have a relevant impact on the pricing of options written on…
Our paper aims to model supply and demand curves of electricity day-ahead auction in a parsimonious way. Our main task is to build an appropriate algorithm to present the information about electricity prices and demands with far less…
In today's era of big data, deep learning and artificial intelligence have formed the backbone for cryptocurrency portfolio optimization. Researchers have investigated various state of the art machine learning models to predict Bitcoin…
We introduce a random forest approach to enable spreads' prediction in the primary catastrophe bond market. We investigate whether all information provided to investors in the offering circular prior to a new issuance is equally important…
In commodity and energy markets swing options allow the buyer to hedge against futures price fluctuations and to select its preferred delivery strategy within daily or periodic constraints, possibly fixed by observing quoted futures…
We present a stochastic-local volatility model for derivative contracts on commodity futures able to describe forward-curve and smile dynamics with a fast calibration to liquid market quotes. A parsimonious parametrization is introduced to…
In this paper we study the pricing of exchange options when underlying assets have stochastic volatility and stochastic correlation. An approximation using a closed-form approximation based on a Taylor expansion of the conditional price is…
This paper focuses on the pricing of continuous geometric Asian options (GAOs) under a multifactor stochastic volatility model. The model considers fast and slow mean reverting factors of volatility, where slow volatility factor is…
In this paper we perform robustness and sensitivity analysis of several continuous-time stochastic volatility (SV) models with respect to the process of market calibration. The analyses should validate the hypothesis on importance of the…
We derive an extremal fractional Gaussian by employing the L\'evy-Khintchine theorem and L\'evian noise. With the fractional Gaussian we then generalize the Black-Scholes-Merton option-pricing formula. We obtain an easily applicable and…
Quantization algorithms have been successfully adopted to option pricing in finance thanks to the high convergence rate of the numerical approximation. In particular, very recently, recursive marginal quantization has been proven to be a…
A variable annuity is an equity-linked financial product typically offered by insurance companies. The policyholder makes an upfront payment to the insurance company and, in return, the insurer is required to make a series of payments…
We investigate the impact of available information on the estimation of the default probability within a generalized structural model for credit risk. The traditional structural model where default is triggered when the value of the firm's…
We discuss a simple, exactly solvable model of stochastic stock dynamics that incorporates regime switching between healthy and distressed regimes. Using this model, which is analytically tractable, we discuss a way of extracting expected…