Related papers: Risk Premium Impact in the Perturbative Black Scho…
In the paper written by Klibanov et al, it proposes a novel method to calculate implied volatility of a European stock options as a solution to ill-posed inverse problem for the Black-Scholes equation. In addition, it proposes a trading…
We invert the Black-Scholes formula. We consider the cases low strike, large strike, short maturity and large maturity. We give explicitly the first 5 terms of the expansions. A method to compute all the terms by induction is also given. At…
Through a novel approach, this paper shows that substantial change in stock market behavior has a statistically and economically significant impact on equity risk premium predictability both on in-sample and out-of-sample cases. In line…
When the underlying stock price is a strict local martingale process under an equivalent local martingale measure, Black-Scholes PDE associated with an European option may have multiple solutions. In this paper, we study an approximation…
A well-designed framework for risk classification and ratemaking in automobile insurance is key to insurers' profitability and risk management, while also ensuring that policyholders are charged a fair premium according to their risk…
In both finance and economics, quantitative models are usually studied as isolated mathematical objects --- most often defined by very strong simplifying assumptions concerning rationality, efficiency and the existence of disequilibrium…
Portfolio managers' orders trade off return and trading cost predictions. Return predictions rely on alpha models, whereas price impact models quantify trading costs. This paper studies what happens when trades are based on an incorrect…
We study markets with no riskless (safe) asset. We derive the corresponding Black-Scholes-Merton option pricing equations for markets where there are only risky assets which have the following price dynamics: (i) continuous diffusions; (ii)…
In this paper we study the short-time behavior of the at-the-money implied volatility for European and arithmetic Asian call options with fixed strike price. The asset price is assumed to follow the Bachelier model with a general stochastic…
Pricing financial derivatives, in particular European-style options at different time-maturities and strikes, means a relevant problem in finance. The dynamics describing the price of vanilla options when constant volatilities and interest…
This paper examines the possibility of using derivative-implied risk premia to explain stock returns. The rapid development of derivative markets has led to the possibility of trading various kinds of risks, such as credit and interest rate…
We consider implied volatilities in asset pricing models, where the discounted underlying is a strict local martingale under the pricing measure. Our main result gives an asymptotic expansion of the right wing of the implied volatility…
We use the P&L on a particular class of swaps, representing variance and higher moments for log returns, as estimators in our empirical study on the S&P500 that investigates the factors determining variance and higher-moment risk premia.…
Trading option strangles is a highly popular strategy often used by market participants to mitigate volatility risks in their portfolios. In this paper we propose a measure of the relative value of a delta-Symmetric Strangle and compute it…
This papers addresses the stock option pricing problem in a continuous time market model where there are two stochastic tradable assets, and one of them is selected as a num\'eraire. It is shown that the presence of arbitrarily small…
In this paper, we study the asymptotic behavior of Asian option prices in the worst case scenario under an uncertain volatility model. We give a procedure to approximate the Asian option prices with a small volatility interval. By imposing…
In this paper we consider the pricing of variable annuities (VAs) with guaranteed minimum withdrawal benefits. We consider two pricing approaches, the classical risk-neutral approach and the benchmark approach, and we examine the associated…
The space of call price functions has a natural noncommutative semigroup structure with an involution. A basic example is the Black--Scholes call price surface, from which an interesting inequality for Black--Scholes implied volatility is…
We consider the pricing problem related to payoffs that can have discontinuities of polynomial growth. The asset price dynamic is modeled within the Black and Scholes framework characterized by a stochastic volatility term driven by a…
Modern approaches to stock pricing in quantitative finance are typically founded on the 'Black-Scholes model' and the underlying 'random walk hypothesis'. Empirical data indicate that this hypothesis works well in stable situations but, in…