Related papers: Information of Interest
In this paper we present a theoretical framework for determining dynamic ask and bid prices of derivatives using the theory of dynamic coherent acceptability indices in discrete time. We prove a version of the First Fundamental Theorem of…
This review presents the set of electricity price models proposed in the literature since the opening of power markets. We focus on price models applied to financial pricing and risk management. We classify these models according to their…
We present a stochastic local volatility model for derivative contracts on commodity futures. The aim of the model is to be able to recover the prices of derivative claims both on futures contracts and on indices on futures strategies.…
Pricing of high-dimensional options is a deep problem of the Theoretical Financial Mathematics. In this article we present a new class of L\'{e}vy driven models of stock markets. In our opinion, any market model should be based on a…
We investigate asymmetry of information in the context of robust approach to pricing and hedging of financial derivatives. We consider two agents, one who only observes the stock prices and another with some additional information, and…
People often face trade-offs between costs and benefits occurring at various points in time. The predominant discounting approach is to use the exponential form. Central to this approach is the discount rate, a unique parameter that…
Hedging strategies in bond markets are computed by martingale representation and the Clark-Ocone formula under the choice of a suitable of numeraire, in a model driven by the dynamics of bond prices. Applications are given to the hedging of…
We propose a model which can be jointly calibrated to the corporate bond term structure and equity option volatility surface of the same company. Our purpose is to obtain explicit bond and equity option pricing formulas that can be…
Based on forward curves modelled as Hilbert-space valued processes, we analyse the pricing of various options relevant in energy markets. In particular, we connect empirical evidence about energy forward prices known from the literature to…
Dividend discount models have been developed in a deterministic setting. Some authors (Hurley and Johnson, 1994 and 1998; Yao, 1997) have introduced randomness in terms of stochastic growth rates, delivering closed-form expressions for the…
In this paper, we propose an alternative valuation approach for CAT bonds where a pricing formula is learned by deep neural networks. Once trained, these networks can be used to price CAT bonds as a function of inputs that reflect both the…
The notion of a credit spread curve is fundamental in fixed income investing, but in practice it is not `given' and needs to be constructed from bond prices either for a particular issuer, or for a sector rating-by-rating. Rather than…
We propose a probabilistic framework for pricing derivatives, which acknowledges that information and beliefs are subjective. Market prices can be translated into implied probabilities. In particular, futures imply returns for these implied…
One of the risks derived from selling long term policies that any insurance company has, arises from interest rates. In this paper we consider a general class of stochastic volatility models written in forward variance form. We also deal…
Perpetual American options are financial instruments that can be readily exercised and do not mature. In this paper we study in detail the problem of pricing this kind of derivatives, for the most popular flavour, within a framework in…
In this paper, using the structural approach is derived a mathematical model of the discrete coupon bond with the provision that allow the holder to demand early redemption at any coupon dates prior to the maturity and based on this model…
We describe a simple model for speculative trading based on adaptive behavior of economic agents.The adaptive behavior is expressed through a feedback mechanism for changing agents' stock-to-bond ratios, depending on the past performance of…
We study a market model in which the volatility of the stock may jump at a random time from a fixed value to another fixed value. This model was already described in the literature. We present a new approach to the problem, based on partial…
The introduction of transaction costs into the theory of option pricing could lead not only to the change of return for options, but also to the change of the volatility. On the base of assumption of the portfolio analysis, a new equation…
Several models for the pricing of derivative securities in illiquid markets are discussed. A typical type of nonlinear partial differential equations arising from these investigation is studied. The scaling properties of these equations are…