Related papers: Option Pricing in Multivariate Stochastic Volatili…
In commodity and energy markets swing options allow the buyer to hedge against futures price fluctuations and to select its preferred delivery strategy within daily or periodic constraints, possibly fixed by observing quoted futures…
We present a stochastic volatility market model where volatility is correlated with return and is represented by an Ornstein-Uhlenbeck process. With this model we exactly measure the leverage effect and other stylized facts, such as mean…
We consider a tick-by-tick model of price formation, in which buy and sell orders are modeled as self-exciting point processes (Hawkes process), similar to the one in [Bacry, Delattre, Hoffmann, Muzy, Modelling microstructure noise with…
We introduce a multivariate diffusion model that is able to price derivative securities featuring multiple underlying assets. Each asset volatility smile is modeled according to a density-mixture dynamical model while the same property…
We combine the one-dimensional Monte Carlo simulation and the semi-analytical one-dimensional heat potential method to design an efficient technique for pricing barrier options on assets with correlated stochastic volatility. Our approach…
In this paper we propose a novel pricing-hedging framework for volatility derivatives which simultaneously takes into account rough volatility and volatility jumps. Our model directly targets the instantaneous variance of a risky asset and…
We investigate the pricing of financial options under the 2-hypergeometric stochastic volatility model. This is an analytically tractable model that reproduces the volatility smile and skew effects observed in empirical market data. Using a…
In financial markets, accurately measuring the risk of future fluctuations in asset prices is of paramount importance. Studies such as Carr and Madan have shown that the expected value of the quadratic variation of log prices can be…
In the current literature, the analytical tractability of discrete time option pricing models is guaranteed only for rather specific types of models and pricing kernels. We propose a very general and fully analytical option pricing…
In this work, we consider the issue of pricing exchange options and spread options with stochastic interest rates. We provide the closed form solution for the exchange option price when interest rate is stochastic. Our result holds when…
Based on a criterion of mathematical simplicity and consistency with empirical market data, a stochastic volatility model has been obtained with the volatility process driven by fractional noise. Depending on whether the stochasticity…
We study the local volatility function in the Foreign Exchange market where both domestic and foreign interest rates are stochastic. This model is suitable to price long-dated FX derivatives. We derive the local volatility function and…
In equity and foreign exchange markets the risk-neutral dynamics of the underlying asset are commonly represented by stochastic volatility models with jumps. In this paper we consider a dense subclass of such models and develop analytically…
In this paper, we propose an equilibrium pricing model in a dynamic multi-period stochastic framework with uncertain income streams. In an incomplete market, there exist two traded risky assets (e.g. stock/commodity and weather derivative)…
This paper explores the application of Machine Learning techniques for pricing high-dimensional options within the framework of the Uncertain Volatility Model (UVM). The UVM is a robust framework that accounts for the inherent…
This paper considers the case of pricing discretely-sampled variance swaps under the class of equity-interest rate hybridization. Our modeling framework consists of the equity which follows the dynamics of the Heston stochastic volatility…
We obtain option pricing formulas for stock price models in which the drift and volatility terms are functionals of a continuous history of the stock prices. That is, the stock dynamics follows a nonlinear stochastic functional differential…
Spread options are a fundamental class of derivative contract written on multiple assets, and are widely used in a range of financial markets. There is a long history of approximation methods for computing such products, but as yet there is…
We introduce a novel GARCH model that integrates two sources of uncertainty to better capture the rich, multi-component dynamics often observed in the volatility of financial assets. This model provides a quasi closed-form representation of…
When trading American and Asian options in the FX derivatives market, banks must calculate prices using a complex mathematical model. It is often observed that different models produce varying prices for the same exotic option, which…