Related papers: Adaptive Wave Models for Option Pricing Evolution:…
The aim of this paper is to present a simple stochastic model that accounts for the effects of a long-memory in volatility on option pricing. The starting point is the stochastic Black-Scholes equation involving volatility with long-range…
This study investigates enhancing option pricing by extending the Black-Scholes model to include stochastic volatility and interest rate variability within the Partial Differential Equation (PDE). The PDE is solved using the finite…
We consider the problem of option pricing under stochastic volatility models, focusing on the linear approximation of the two processes known as exponential Ornstein-Uhlenbeck and Stein-Stein. Indeed, we show they admit the same limit…
Black-Scholes (BS) is the standard mathematical model for option pricing in financial markets. Option prices are calculated using an analytical formula whose main inputs are strike (at which price to exercise) and volatility. The BS…
We present a new hydrodynamic analogy of nonrelativistic quantum particles in potential wells. Similarities between a real variant of the Schr\"odinger equation and gravity-capillary shallow water waves are reported and analyzed. We show…
In this paper we provide an extensive classification of one and two dimensional diffusion processes which admit an exact solution to the Kolmogorov (and hence Black-Scholes) equation (in terms of hypergeometric functions). By identifying…
We present a unified, market-complete model that integrates both the Bachelier and Black-Scholes-Merton frameworks for asset pricing. The model allows for the study, within a unified framework, of asset pricing in a natural world that…
The Black-Scholes implied volatility skew at the money of SPX options is known to obey a power law with respect to the time-to-maturity. We construct a model of the underlying asset price process which is dynamically consistent to the power…
This paper proposes a data-driven approach, by means of an Artificial Neural Network (ANN), to value financial options and to calculate implied volatilities with the aim of accelerating the corresponding numerical methods. With ANNs being…
This paper presents closed-form analytical formulas for pricing volatility and variance derivatives with nonlinear payoffs under discrete-time observations. The analysis is based on a probabilistic approach assuming that the underlying…
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 apply a physics-informed deep-learning approach the PINN approach to the Black-Scholes equation for pricing American and European options. We test our approach on both simulated as well as real market data, compare it to…
Pricing of high-dimensional options is one of the most important problems in Mathematical Finance. The objective of this manuscript is to present an original self-contained treatment of the multidimensional pricing. During the past decades…
The purpose of this survey chapter is to present a transformation technique that can be used in analysis and numerical computation of the early exercise boundary for an American style of vanilla options that can be modelled by class of…
Neural networks with sufficiently smooth activation functions can approximate values and derivatives of any smooth function, and they are differentiable themselves. We improve the approximation capability of neural networks by utilizing the…
The accurate valuation of financial derivatives plays a pivotal role in the finance industry. Although closed formulas for pricing are available for certain models and option types, exemplified by the European Call and Put options in the…
The Black-Scholes model anticipates rather well the observed prices for options in the case of a strike price that is not too far from the current price of the underlying asset. Some useful extensions can be obtained by an adequate…
We study the pricing of European-style options written on forward contracts within function-valued infinite-dimensional affine stochastic volatility models. The dynamics of the underlying forward price curves are modeled within the…
In this paper we derive tractable formulae for price sensitivities of two-dimensional spread options using Malliavin calculus. In particular, we consider spread options with asset dynamics driven by geometric Brownian motion and stochastic…
We consider the Black--Scholes model of financial market modified to capture the stochastic nature of volatility observed at real financial markets. For volatility driven by the Ornstein--Uhlenbeck process, we establish the existence of…