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We establish an explicit approximation formula for European put option prices within a general stochastic volatility model with time-dependent parameters. Our methodology is based on expansions of the mixing representation of the put option…
This paper presents a new prediction model for time series data by integrating a time-varying Geometric Brownian Motion model with a pricing mechanism used in financial engineering. Typical time series models such as Auto-Regressive…
This paper proposes a numerical method for pricing foreign exchange (FX) options in a model which deals with stochastic interest rates and stochastic volatility of the FX rate. The model considers four stochastic drivers, each represented…
The pricing of currency options is largely dependent on the dynamic relationship between a pair of currencies. Typically, the pricing of options with payoffs dependent on multi-assets becomes tricky for reasons such as the non-Gaussian…
We develop quantum algorithms for pricing Asian and barrier options under the Heston model, a popular stochastic volatility model, and estimate their costs, in terms of T-count, T-depth and number of logical qubits, on instances under…
The article is devoted to models of financial markets with stochastic volatility, which is defined by a functional of Ornstein-Uhlenbeck process or Cox-Ingersoll-Ross process. We study the question of exact price of European option. The…
The use of factor stochastic volatility models requires choosing the number of latent factors used to describe the dynamics of the financial returns process; however, empirical evidence suggests that the number and makeup of pertinent…
This paper studies the pricing problem in which the underlying asset follows a non-Markovian stochastic volatility model. Classical partial differential equation methods face significant challenges in this context, as the option prices…
In this paper, to cope with the shortage of sufficient theoretical support resulted from the fast-growing quantitative financial modeling, we investigate two classes of generalized stochastic volatility models, establish their…
Adaptive wave model for financial option pricing is proposed, as a high-complexity alternative to the standard Black--Scholes model. The new option-pricing model, representing a controlled Brownian motion, includes two wave-type approaches:…
This paper deals with an extension of the so-called Black-Scholes model in which the volatility is modeled by a linear combination of the components of the solution of a differential equation driven by a fractional Brownian motion of Hurst…
Volatility measures the amplitude of price fluctuations. Despite it is one of the most important quantities in finance, volatility is not directly observable. Here we apply a maximum likelihood method which assumes that price and volatility…
A parsimonious generalization of the Heston model is proposed where the volatility-of-volatility is assumed to be stochastic. We follow the perturbation technique of Fouque et al (2011, CUP) to derive a first order approximation of the…
In this paper, we study the option pricing problems for rough volatility models. As the framework is non-Markovian, the value function for a European option is not deterministic; rather, it is random and satisfies a backward stochastic…
This paper is devoted to the price-storage dynamics in natural gas markets. A novel stochastic path-dependent volatility model is introduced with path-dependence in both price volatility and storage increments. Model calibrations are…
Recent years have seen an emerging class of structured financial products based on options linked to dynamic asset allocation strategies. One of the most chosen approach is the so-called target volatility mechanism. It shifts between risky…
This paper studies the pricing of European-style Asian options when the price dynamics of the underlying risky asset are assumed to follow a Markov- modulated geometric Brownian motion; that is, the appreciation rate and the volatility of…
We introduce and study a non-equilibrium continuous-time dynamical model of the price of a single asset traded by a population of heterogeneous interacting agents in the presence of uncertainty and regulatory constraints. The model takes…
We price European options in a class of models in which the volatility of the underlying risky asset depends on the short rate of interest. Our study results in an explicit pricing formula that depends on knowledge of a characteristic…
We introduce stochastic volatility models, in which the volatility is described by a time-dependent nonnegative function of a reflecting diffusion. The idea to use reflecting diffusions as building blocks of the volatility came into being…