Related papers: Renewal equations for option pricing
This paper presents a new model for pricing financial derivatives subject to collateralization. It allows for collateral arrangements adhering to bankruptcy laws. As such, the model can back out the market price of a collateralized…
We derive a forward partial integro-differential equation for prices of call options in a model where the dynamics of the underlying asset under the pricing measure is described by a -possibly discontinuous- semimartingale. A uniqueness…
The paper proposes a class of financial market models which are based on inhomogeneous telegraph processes and jump diffusions with alternating volatilities. It is assumed that the jumps occur when the tendencies and volatilities are…
We obtain option pricing formulas for stock price models in which the drift and volatility terms are functionals of a continuous history of the stock prices. That is, the stock dynamics follows a nonlinear stochastic functional differential…
There exist several methods how more general options can be priced with call prices. In this article, we extend these results to cover a wider class of options and market models. In particular, we introduce a new pricing formula which can…
In this study, we discuss a machine learning technique to price exotic options with two underlying assets based on a non-Gaussian Levy process model. We introduce a new multivariate Levy process model named the generalized normal tempered…
Accurately forecasting the price of oil, the world's most actively traded commodity, is of great importance to both academics and practitioners. We contribute by proposing a functional time series based method to model and forecast oil…
We present a stochastic local volatility model for derivative contracts on commodity futures. The aim of the model is to be able to recover the prices of derivative claims both on futures contracts and on indices on futures strategies.…
This paper studies the problem of optimally extracting nonrenewable natural resources. Taking into account the fact that the market values of the main natural resources i.e. oil, natural gas, copper,..., etc, fluctuate randomly following…
Employing probabilistic techniques we compute best possible upper and lower bounds on the price of an option on one or two assets with continuous piecewise linear payoff function based on prices of simple call options of possibly distinct…
We evaluate the average waiting time between observing the price of financial markets and the next price change, especially in an on-line foreign exchange trading service for individual customers via the internet. Basic technical idea of…
A derivative is a financial security whose value is a function of underlying traded assets and market outcomes. Pricing a financial derivative involves setting up a market model, finding a martingale (``fair game") probability measure for…
In the regime switching extension of Black-Scholes-Merton model of asset price dynamics, one assumes that the volatility coefficient evolves as a hidden pure jump process. Under the assumption of Markov regime switching, we have considered…
Using a suitable change of probability measure, we obtain a novel Poisson series representation for the arbitrage- free price process of vulnerable contingent claims in a regime-switching market driven by an underlying continuous- time…
We study the problem of reconstruction of special special time dependent local volatility from market prices of options with different strikes at two expiration times. For a general diffusion process we apply the linearization technique and…
We provide a complete representation of the interest rate in the extended CIR model. Since it was proved in Maghsoodi (1996) that the representation of the CIR process as a sum of squares of independent Ornstein-Uhlenbeck processes is…
Here we develop an option pricing method based on Legendre series expansion of the density function. The key insight, relying on the close relation of the characteristic function with the series coefficients, allows to recover the density…
Typically options with a path dependent payoff, such as Target Accumulation Redemption Note (TARN), are evaluated by a Monte Carlo method. This paper describes a finite difference scheme for pricing a TARN option. Key steps in the proposed…
We consider a financial market in discrete time and study pricing and hedging conditional on the information available up to an arbitrary point in time. In this conditional framework, we determine the structure of arbitrage-free prices.…
Recent empirical studies suggest that the volatility of an underlying price process may have correlations that decay slowly under certain market conditions. In this paper, the volatility is modeled as a stationary process with long-range…