Pricing of Securities
We introduce a non-parametric method to recover physical probability distributions of asset returns based on their European option prices and some other sparse parametric information. Thus the main problem is similar to the one considered…
We investigate a statistical-static hedging technique for pricing assets considered as single-step stochastic cash flows. The valuation is based on constructing in a canonical way a European style derivative on a benchmark security such…
Bank behaviour is important for pricing XVA because it links different counterparties and thus breaks the usual XVA pricing assumption of counterparty independence. Consider a typical case of a bank hedging a client trade via a CCP. On…
We consider rough stochastic volatility models where the driving noise of volatility has fractional scaling, in the "rough" regime of Hurst parameter $H < 1/2$. This regime recently attracted a lot of attention both from the statistical and…
We develop a model for indifference pricing in derivatives markets where price quotes have bid-ask spreads and finite quantities. The model quantifies the dependence of the prices and hedging portfolios on an investor's beliefs, risk…
In a unified framework we study equilibrium in the presence of an insider having information on the signal of the firm value, which is naturally connected to the fundamental price of the firm related asset. The fundamental value itself is…
We develop a unified valuation theory that incorporates credit risk (defaults), collateralization and funding costs, by expanding the replication approach to a generality that has not yet been studied previously and reaching valuation when…
In this paper we provide a general solution for the dividend discount model in order to compute the intrinsic value of a common stock that allows for multiple stage growth rates of any predetermined number of periods. A mathematical proof…
We study American swaptions in the linear-rational (LR) term structure model introduced in [5]. The American swaption pricing problem boils down to an optimal stopping problem that is analytically tractable. It reduces to a free-boundary…
In this paper, we analyse some equity-linked contracts that are related to drawdown and drawup events based on assets governed by a geometric spectrally negative L\'evy process. Drawdown and drawup refer to the differences between the…
In this paper we solve the discrete time mean-variance hedging problem when asset returns follow a multivariate autoregressive hidden Markov model. Time dependent volatility and serial dependence are well established properties of financial…
Black-Scholes equation, after a certain coordinate transformation, is equivalent to the heat equation. On the other hand the relativistic extension of the latter, the telegraphers equation, can be derived from the Euclidean version of the…
We derive formulas for the performance of capital assets in continuous time from an efficient market hypothesis, with no stochastic assumptions and no assumptions about the beliefs or preferences of investors. Our efficient market…
Risk management in financial derivative markets requires inevitably the calculation of the different price sensitivities. The literature contains an abundant amount of research works that have studied the computation of these important…
This work studies the valuation of currency options in markets suffering from a financial crisis. We consider a European option where the underlying asset is a foreign currency. We assume that the value of the underlying asset is a…
Credit Default Swaps (CDS) on a reference entity may be traded in multiple currencies, in that protection upon default may be offered either in the domestic currency where the entity resides, or in a more liquid and global foreign currency.…
This paper is a continuation of Akahori-Barsotti-Imamura (2017) and where the authors i) showed that a payment at a random time, which we call timing risk, is decomposed into an integral of static positions of knock-in type barrier options,…
In this paper, we are presenting a method for estimation of market parameters modeled by jump diffusion process. The method proposed is based on Gibbs sampler, while the market parameters are the drift, the volatility, the jump intensity…
We propose an elementary model to price European physical delivery swaptions in multicurve setting with a simple exact closed formula. The proposed model is very parsimonious: it is a three-parameter multicurve extension of the…
The aim of this paper is to evaluate geometric Asian option by a mixed fractional subdiffusive Black-Scholes model. We derive a pricing formula for geometric Asian option when the underlying stock follows a time changed mixed fractional…