Related papers: A Unified Framework for Pricing Credit and Equity …
Model uncertainty is a type of inevitable financial risk. Mistakes on the choice of pricing model may cause great financial losses. In this paper we investigate financial markets with mean-volatility uncertainty. Models for stock markets…
SOFR derivatives market remains illiquid and incomplete so it is not amenable to classical risk-neutral term structure models which are based on the assumption of perfect liquidity and completeness. This paper develops a statistical SOFR…
A homogeneously saturated equation for the time development of the price of a financial asset is presented and investigated for the pricing of European call options using noise that is distributed as a Student's t-distribution. In the limit…
In this work we want to provide a general principle to evaluate the CVA (Credit Value Adjustment) for a vulnerable option, that is an option subject to some default event, concerning the solvability of the issuer. CVA is needed to evaluate…
In this paper we provide evidence that financial option markets for equity indices give rise to non-trivial dependency structures between its constituents. Thus, if the individual constituent distributions of an equity index are inferred…
The classical linear Black--Scholes model for pricing derivative securities is a popular model in financial industry. It relies on several restrictive assumptions such as completeness, and frictionless of the market as well as the…
In this theoretical paper, I propose creation of a venture bank, able to multiply the capital of a venture capital firm by at least 47 times, without requiring access to the Federal Reserve or other central bank apart from settlement. This…
We analyze the relative price change of assets starting from basic supply/demand considerations subject to arbitrary motivations. The resulting stochastic differential equation has coefficients that are functions of supply and demand. We…
This study delves into the temporal dynamics within the equity market through the lens of bond traders. Recognizing that the riskless interest rate fluctuates over time, we leverage the Black-Derman-Toy model to trace its temporal…
We introduce a fast and flexible Machine Learning (ML) framework for pricing derivative products whose valuation depends on volatility surfaces. By parameterizing volatility surfaces with the 5-parameter stochastic volatility inspired (SVI)…
We develop a new nonparametric approach for estimating the risk-neutral density of asset prices and reformulate its estimation into a double-constrained optimization problem. We evaluate our approach using the S\&P 500 market option prices…
We suggest an intermediate currency approach that allows us to price options on all FX markets simultaneously under the same risk-neutral measure which ensures consistency of FX option prices across all markets. In particular, it is…
This paper proposes to model asset price dynamics with a mixture of diffusion processes where the instantaneous volatility of the underlying diffusion process contains a random vector. The marginal probability distributions of the proposed…
We price and replicate a variety of claims written on the log price $X$ and quadratic variation $[X]$ of a risky asset, modeled as a positive semimartingale, subject to stochastic volatility and jumps. The pricing and hedging formulas do…
In this paper, we explore the pricing and hedging strategies for an innovative insurance product called the equity protection swap(EPS). Notably, we focus on the application of EPSs involving cross-currency reference portfolios, reflecting…
We present a high-level framework that explains why, in practice, different pricing models calibrated to the same vanilla surface tend to produce similar valuations for exotic derivatives. Our approach acts as an overlay on the Monte Carlo…
We introduce a local volatility model for the valuation of options on commodity futures by using European vanilla option prices. The corresponding calibration problem is addressed within an online framework, allowing the use of multiple…
This paper develops a model-free framework for static fixed-income pricing and the replication of liability cash flows. We show that the absence of static arbitrage across a universe of fixed-income instruments is equivalent to the…
In this study, we propose a new formula for spread option pricing with the dependence of two assets described by a copula function. The advantage of the proposed method is that it requires only the numerical evaluation of a one-dimensional…
We present a novel approach to the pricing of financial instruments in emission markets, for example, the EU ETS. The proposed structural model is positioned between existing complex full equilibrium models and pure reduced form models.…