Related papers: Perturbative Approach on Financial Markets
In this paper, we present the possibility of using the Ising like models to explain by Statistical Physics means the connection between the financial discontinuities (herd behavior, bubbles, crashes) and "critical points" in physical of…
Local volatility is an important quantity in option pricing, portfolio hedging, and risk management. It is not directly observable from the market; hence calibrations of local volatility models are necessary using observable market data.…
Mounting empirical evidence suggests that the observed extreme prices within a trading period can provide valuable information about the volatility of the process within that period. In this paper we define a class of stochastic volatility…
In this paper, we discuss the non-collapsibility concept and propose a new approach based on Dirichlet process mixtures to estimate the conditional effect of covariates in non-collapsible models. Using synthetic data, we evaluate the…
We consider an optimal investment and consumption problem for a Black-Scholes financial market with stochastic volatility and unknown stock appreciation rate. The volatility parameter is driven by an external economic factor modeled as a…
We investigate financial markets under model risk caused by uncertain volatilities. For this purpose we consider a financial market that features volatility uncertainty. To have a mathematical consistent framework we use the notion of…
Bayesian models based on the Dirichlet process and other stick-breaking priors have been proposed as core ingredients for clustering, topic modeling, and other unsupervised learning tasks. Prior specification is, however, relatively…
We study the Heston model for pricing European options on stocks with stochastic volatility. This is a Black\--Scholes\--type equation whose spatial domain for the logarithmic stock price $x\in \RR$ and the variance $v\in (0,\infty)$ is the…
Subdiffusion is a well established phenomenon in physics. In this paper we apply the subdiffusive dynamics to analyze financial markets. We focus on the financial aspect of time fractional diffusion model with moving boundary i.e. American…
Black-Scholes implied volatility is a quantile. The insight follows from the normalized option price being a probability on the variance scale, with the inverse Gaussian distribution providing the link. It enables analytically exact and…
We introduce a price impact model which accounts for finite market depth, tightness and resilience. Its coupled bid- and ask-price dynamics induce convex liquidity costs. We provide existence of an optimal solution to the classical problem…
In complete markets, there are risky assets and a riskless asset. It is assumed that the riskless asset and the risky asset are traded continuously in time and that the market is frictionless. In this paper, we propose a new method for…
The Black-Scholes framework is crucial in pricing a vast number of financial instruments that permeate the complex dynamics of world markets. Associated with this framework, we consider a second-order differential operator $L(x,…
A perturbation method is presented which can be applied to the description of a wide range of physical problems that deal with dynamics of dipolar coupled spins in solids. The method is based on expansion of the operator exponent in a…
In an efficient stock market, the returns and their time-dependent volatility are often jointly modeled by stochastic volatility models (SVMs). Over the last few decades several SVMs have been proposed to adequately capture the defining…
Stochastic models for collections of interacting populations have crucial roles in scientific fields such as epidemiology and ecology, yet the standard approach to extending an ordinary differential equation model to a Markov chain does not…
Volatility-based trading strategies have attracted a lot of attention in financial markets due to their ability to capture opportunities for profit from market dynamics. In this article, we propose a new volatility-based trading strategy…
This article proposes a link between statistics and the theory of Dirichlet forms used to compute errors. The error calculus based on Dirichlet forms is an extension of classical Gauss' approach to error propagation. The aim of this paper…
It is widely accepted that there is strong persistence in the volatility of financial time series. The origin of the observed persistence, or long-range memory, is still an open problem as the observed phenomenon could be a spurious effect.…
In this work we present an analytical model, based on the path-integral formalism of Statistical Mechanics, for pricing options using first-passage time problems involving both fixed and deterministically moving absorbing barriers under…