Related papers: Financial markets with volatility uncertainty
Most finance studies are discussed on the basis of several hypotheses, for example, investors rationally optimize their investment strategies. However, the hypotheses themselves are sometimes criticized. Market impacts, where trades of…
It is believed by the majority today that the efficient market hypothesis is imperfect because of market irrationality. Using the physical concepts and mathematical structures of quantum mechanics, we construct an econophysics framework for…
We introduce a discrete binary tree for pricing contingent claims with the underlying security prices exhibiting history dependence characteristic of that induced by market microstructure phenomena. Example dependencies considered include…
We present a model of financial markets originally proposed for a turbulent flow, as a dynamic basis of its intermittent behavior. Time evolution of the price change is assumed to be described by Brownian motion in a power-law potential,…
Geometric arbitrage theory reformulates a generic asset model possibly allowing for arbitrage by packaging all asset and their forward dynamics into a stochastic principal fibre bundle, with a connection whose parallel transport encodes…
Realization of uncertainty of prices is captured by volatility, that is the tendency of prices to vary along a period of time. This is generally measured as standard deviation of daily returns. In this paper we propose and investigate the…
We study the effect of investor inertia on stock price fluctuations with a market microstructure model comprising many small investors who are inactive most of the time. It turns out that semi-Markov processes are tailor made for modelling…
We consider arbitrage free valuation of European options in Black-Scholes and Merton markets, where the general structure of the market is known, however the specific parameters are not known. In order to reflect this subjective uncertainty…
A Markovian modulation captures the trend in the market and influences the market coefficients accordingly. The different scenarios presented by the market are modeled as the distinct states of a discrete-time Markov chain. In our paper, we…
Volatility, as a primary indicator of financial risk, forms the foundation of classical frameworks such as Markowitz's Portfolio Theory and the Efficient Market Hypothesis (EMH). However, its conventional use rests on assumptions-most…
We consider the Brownian market model and the problem of expected utility maximization of terminal wealth. We, specifically, examine the problem of maximizing the utility of terminal wealth under the presence of transaction costs of a…
We construct and study market models admitting optimal arbitrage. We say that a model admits optimal arbitrage if it is possible, in a zero-interest rate setting, starting with an initial wealth of 1 and using only positive portfolios, to…
The paper develops general, discrete, non-probabilistic market models and minmax price bounds leading to price intervals for European options. The approach provides the trajectory based analogue of martingale-like properties as well as a…
In recent years there has been a closer interrelationship between several scientific areas trying to obtain a more realistic and rich explanation of the natural and social phenomena. Among these it should be emphasized the increasing…
This paper formulates a model of utility for a continuous time framework that captures the decision-maker's concern with ambiguity about both volatility and drift. Corresponding extensions of some basic results in asset pricing theory are…
We use the expectation of the range of an arithmetic Brownian motion and the method of moments on the daily high, low, opening and closing prices to estimate the volatility of the stock price. The daily price jump at the opening is…
We study a market model in which the volatility of the stock may jump at a random time from a fixed value to another fixed value. This model was already described in the literature. We present a new approach to the problem, based on partial…
We introduce the concept of no-arbitrage in a credit risk market under ambiguity considering an intensity-based framework. We assume the default intensity is not exactly known but lies between an upper and lower bound. By means of the…
We consider a stochastic volatility model with jumps where the underlying asset price is driven by the process sum of a 2-dimensional Brownian motion and a 2-dimensional compensated Poisson process. The market is incomplete, resulting in…
We consider evaluation methods for payoffs with an inherent financial risk as encountered for instance for portfolios held by pension funds and insurance companies. Pricing such payoffs in a way consistent to market prices typically…