Related papers: Exact Pricing and Hedging Formulas of Long Dated V…
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 propose a new `hedged' Monte-Carlo (HMC) method to price financial derivatives, which allows to determine simultaneously the optimal hedge. The inclusion of the optimal hedging strategy allows one to reduce the financial risk associated…
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…
This paper investigates the optimal choices of financial derivatives to complete a financial market in the framework of stochastic volatility (SV) models. We introduce an efficient and accurate simulation-based method, applicable to…
Closed form formulas for swaption prices in HJM model are derived. These formulas are used for nonparametric fit of deterministic forward volatility. It is demonstrated that this formula and non-parametric fit works very well and can be…
The paper demonstrates that a pure-diffusion 3/2 model is able to capture the observed upward-sloping implied volatility skew in VIX options. This observation contradicts a common perception in the literature that jumps are required for the…
We consider the problem of optimal hedging in an incomplete market with an established pricing kernel. In such a market, prices are uniquely determined, but perfect hedges are usually not available. We work in the rather general setting of…
We consider derivatives written on multiple underlyings in a one-period financial market, and we are interested in the computation of model-free upper and lower bounds for their arbitrage-free prices. We work in a completely realistic…
We consider as given a discrete time financial market with a risky asset and options written on that asset and determine both the sub- and super-hedging prices of an American option in the model independent framework of ArXiv:1305.6008. We…
There are several approaches to modeling and forecasting time series as applied to prices of commodities and financial assets. One of the approaches is to model the price as a non-stationary time series process with heteroscedastic…
In this paper, we propose the uncertain volatility models with stochastic bounds. Like the regular uncertain volatility models, we know only that the true model lies in a family of progressively measurable and bounded processes, but instead…
Most models for barrier pricing are designed to let a market maker tune the model-implied covariance between moves in the asset spot price and moves in the implied volatility skew. This is often implemented with a local…
Classical solvable stochastic volatility models (SVM) use a CEV process for instantaneous variance where the CEV parameter $\gamma$ takes just few values: 0 - the Ornstein-Uhlenbeck process, 1/2 - the Heston (or square root) process, 1-…
We consider the pricing and hedging of exotic options in a model-independent set-up using \emph{shortfall risk and quantiles}. We assume that the marginal distributions at certain times are given. This is tantamount to calibrating the model…
We study hedging and pricing of unattainable contingent claims in a non-Markovian regime-switching financial model. Our financial market consists of a bank account and a risky asset whose dynamics are driven by a Brownian motion and a…
It is well documented that a model for the underlying asset price process that seeks to capture the behaviour of the market prices of vanilla options needs to exhibit both diffusion and jump features. In this paper we assume that the asset…
We consider hedging of a contingent claim by a 'semi-static' strategy composed of a dynamic position in one asset and static (buy-and-hold) positions in other assets. We give general representations of the optimal strategy and the hedging…
In this paper we study the pricing and hedging of structured products in energy markets, such as swing and virtual gas storage, using the exponential utility indifference pricing approach in a general incomplete multivariate market model…
We confirm and substantially extend the recent empirical result of Andersen et al. \cite{Andersen2015}, where it is shown that the amount of risk $W$ exchanged in the E-mini S\&P futures market (i.e. price times volume times volatility)…
We discuss the pricing and hedging of volatility options in some rough volatility models. First, we develop efficient Monte Carlo methods and asymptotic approximations for computing option prices and hedge ratios in models where…