Related papers: A comprehensive method for exotic option pricing
In the paper, the pricing of Quanto options is studied, where the underlying foreign asset and the exchange rate are correlated with each other. Firstly, we adopt Bayesian methods to estimate unknown parameters entering the pricing formula…
We derive a recursive formula for arithmetic Asian option prices with finite observation times in semimartingale models. The method is based on the relationship between the risk-neutral expectation of the quadratic variation of the return…
Options have provided a field of much study because of the complexity involved in pricing them. The Black-Scholes equations were developed to price options but they are only valid for European styled options. There is added complexity when…
We develop a model for indifference pricing in derivatives markets where price quotes have bid-ask spreads and finite quantities. The model quantifies the dependence of the prices and hedging portfolios on an investor's beliefs, risk…
Some expansion methods have been proposed for approximately pricing options which has no exact closed formula. Benhamou et al. (2010) presents the smart expansion method that directly expands the expectation value of payoff function with…
Option pricing formulas are derived from a non-Gaussian model of stock returns. Fluctuations are assumed to evolve according to a nonlinear Fokker-Planck equation which maximizes the Tsallis nonextensive entropy of index $q$. A generalized…
In this paper we examine the problem of valuing an exotic derivative known as the American passport option where the underlying is driven by a L\'evy process. The passport option is a call option on a trading account. We derive the pricing…
In mathematical finance a popular approach for pricing options under some Levy model is to consider underlying that follows a Poisson jump diffusion process. As it is well known this results in a partial integro-differential equation (PIDE)…
This paper addresses the challenges of pricing exotic options and structured products, which traditional models often fail to handle due to their inability to capture real-world market phenomena like fat-tailed distributions and volatility…
In this study, we discuss a machine learning technique to price exotic options with two underlying assets based on a non-Gaussian Levy process model. We introduce a new multivariate Levy process model named the generalized normal tempered…
We study Vanna-Volga methods which are used to price first generation exotic options in the Foreign Exchange market. They are based on a rescaling of the correction to the Black-Scholes price through the so-called `probability of survival'…
We introduce a new approach for the numerical pricing of American options. The main idea is to choose a finite number of suitable excessive functions (randomly) and to find the smallest majorant of the gain function in the span of these…
After a brief review of option pricing theory, we introduce various methods proposed for extracting the statistical information implicit in options prices. We discuss the advantages and drawbacks of each method, the interpretation of their…
We develop series expansions in powers of $q^{-1}$ and $q^{-1/2}$ of solutions of the equation $\psi(z) = q$, where $\psi(z)$ is the Laplace exponent of a hyperexponential L\'{e}vy process. As a direct consequence we derive analytic…
The literature on volatility modelling and option pricing is a large and diverse area due to its importance and applications. This paper provides a review of the most significant volatility models and option pricing methods, beginning with…
In this paper, we address the question of the optimal Delta and Vega hedging of a book of exotic options when there are execution costs associated with the trading of vanilla options. In a framework where exotic options are priced using a…
Under a generalized skew normal distribution we consider the problem of European option pricing. Existence of the martingale measure is proved. An explicit expression for a given European option price is presented in terms of the cumulative…
Using classical Taylor series techniques, we develop a unified approach to pricing and implied volatility for European-style options in a general local-stochastic volatility setting. Our price approximations require only a normal CDF and…
Here we develop an option pricing method based on Legendre series expansion of the density function. The key insight, relying on the close relation of the characteristic function with the series coefficients, allows to recover the density…
A number of Bermudan option pricing methods that are applicable to options on multiple assets are studied in this thesis, one of the dominating questions being the natural scaling needed to extrapolate from Bermudan to American (both…