Related papers: Extra-Dimensional Approach to Option Pricing and S…
In this article we look at stochastic processes with uncertain parameters, and consider different ways in which information is obtained when carrying out observations. For example we focus on the case of a the random evolution of a traded…
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…
The dynamics of market prices is described as the evolution of opinions in the trading community regarding future market behavior. The price then is a function of the voting process of the market players in favor to raise or reduce the…
We consider an optimal investment and consumption problem for a Black-Scholes financial market with stochastic coefficients driven by a diffusion process. We assume that an agent makes consumption and investment decisions based on CRRA…
Employing the Klein-Gordon equation, we propose a generalized Black-Scholes equation. In addition, we found a limit where this generalized equation is invariant under conformal transformations, in particular invariant under scale…
A Bayesian procedure is developed for multivariate stochastic volatility, using state space models. An autoregressive model for the log-returns is employed. We generalize the inverted Wishart distribution to allow for different correlation…
We consider the pricing problem related to payoffs that can have discontinuities of polynomial growth. The asset price dynamic is modeled within the Black and Scholes framework characterized by a stochastic volatility term driven by a…
Mean field optimal control problems are a class of optimization problems that arise from optimal control when applied to the many body setting. In the noisy case one has a set of controllable stochastic processes and a cost function that is…
A master equation approach to the numerical solution of option pricing models is developed. The basic idea of the approach is to consider the Black--Scholes equation as the macroscopic equation of an underlying mesoscopic stochastic option…
In this paper an arbitrage strategy is constructed for the modified Black-Scholes model driven by fractional Brownian motion or by a time changed fractional Brownian motion, when the volatility is stochastic. This latter property allows the…
Starting from an important research path, we consider gravity as a collective phenomenon governed by statistical mechanics. While previous studies have focussed on the thermodynamic heat flow across a 2d-horizon as perceived by a single,…
The validity of an approximation formula for European option prices under a general stochastic volatility model is proved in the light of the Edgeworth expansion for ergodic diffusions. The asymptotic expansion is around the Black-Scholes…
This work explores the possibility of applying stochastic quantum mechanics to curved spacetimes, with an emphasis on the Schwarzschild black hole. After reviewing the fundamental concepts of this approach, the quantum stochastic equations…
We address the Merton problem of maximizing the expected utility of terminal wealth using techniques from variational analysis. Under a general continuous semimartingale market model with stochastic parameters, we obtain a characterization…
We study specific nonlinear transformations of the Black-Scholes implied volatility to show remarkable properties of the volatility surface. Model-free bounds on the implied volatility skew are given. Pricing formulas for the European…
In the classical model of stock prices which is assumed to be Geometric Brownian motion, the drift and the volatility of the prices are held constant. However, in reality, the volatility does vary. In quantitative finance, the Heston model…
Geometry constitutes a core set of intuitions present in all humans, regardless of their language or schooling [1]. Could brain's built in machinery for processing geometric information take part in uncertainty representation? For decades…
This paper considers options pricing when the assumption of normality is replaced with that of the symmetry of the underlying distribution. Such a market affords many equivalent martingale measures (EMM). However we argue (as in the…
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…
Discrete multiplicative turbulent cascades are described using a formalism involving infinitely divisible random measures. This permits to consider the continuous limit of a cascade developed on a continuum of scales, and to provide the…