Related papers: Measuring expectations in options markets: An appl…
This paper is concerned with nonlinear filtering of the coefficients in asset price models with stochastic volatility. More specifically, we assume that the asset price process $ S=(S_{t})_{t\geq0} $ is given by \[…
We present an option pricing formula for European options in a stochastic volatility model. In particular, the volatility process is defined using a fractional integral of a diffusion process and both the stock price and the volatility…
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…
The Black-Scholes model (sometimes known as the Black-Scholes-Merton model) gives a theoretical estimate for the price of European options. The price evolution under this model is described by the Black-Scholes formula, one of the most…
Grasping the historical volatility of stock market indices and accurately estimating are two of the major focuses of those involved in the financial securities industry and derivative instruments pricing. This paper presents the results of…
In this paper, we describe a general method for constructing the posterior distribution of an option price. Our framework takes as inputs the prior distributions of the parameters of the stochastic process followed by the underlying, as…
Stock market forecasting has been a topic of extensive research, aiming to provide investors with optimal stock recommendations for higher returns. In recent years, this field has gained even more attention due to the widespread adoption of…
The standard Black-Scholes theory of option pricing is extended to cope with underlying return fluctuations described by general probability distributions. A Langevin process and its related Fokker-Planck equation are devised to model the…
This paper explores the concept of random-time subordination in modelling stock-price dynamics, and We first present results on the Laplace distribution as a Gaussian variance-mixture, in particular a more efficient volatility estimation…
In this paper we introduce a simple continuous-time asset pricing framework, based on general multi-dimensional diffusion processes, that combines semi-analytic pricing with a nonlinear specification for the market price of risk. Our…
We propose a prediction model based on the minority game in which traders continuously evaluate a complete set of trading strategies with different memory lengths using the strategies' past performance. Based on the chosen trading strategy…
In the present paper we construct stock price processes with the same marginal log-normal law as that of a geometric Brownian motion and also with the same transition density (and returns' distributions) between any two instants in a given…
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 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 consider stochastic volatility models under parameter uncertainty and investigate how model derived prices of European options are affected. We let the pricing parameters evolve dynamically in time within a specified region, and…
We create a time series model for annual returns of three asset classes: the USA Standard & Poor (S&P) stock index, the international stock index, and the USA Bank of America investment-grade corporate bond index. Using this, we made an…
One of the major issues studied in finance that has always intrigued, both scholars and practitioners, and to which no unified theory has yet been discovered, is the reason why prices move over time. Since there are several well-known…
The volatility characterizes the amplitude of price return fluctuations. It is a central magnitude in finance closely related to the risk of holding a certain asset. Despite its popularity on trading floors, the volatility is unobservable…
Non-equilibrium phenomena occur not only in physical world, but also in finance. In this work, stochastic relaxational dynamics (together with path integrals) is applied to option pricing theory. A recently proposed model (by Ilinski et…
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…