Related papers: Strict local martingales and bubbles
We consider the mean-variance hedging problem under partial information in the case where the flow of observable events does not contain the full information on the underlying asset price process. We introduce a martingale equation of a new…
Equity default-swaps pay the holder a fixed amount of money when the underlying spot level touches a (far-down) barrier during the life of the instrument. While most pricing models give reasonable results when the barrier lies within the…
We present simple new examples of pure-jump strict local martingales. The examples are constructed as exponentials of self-exciting affine Markov processes. We characterize the strict local martingale property of these processes by an…
The aim of this work is to introduce a new stochastic volatility model for equity derivatives. To overcome some of the well-known problems of the Heston model, and more generally of the affine models, we define a new specification for the…
In the context of Risk Neutral Pricing theory, we consider the classic problem of calibrating a martingale over $\mathbb{R}^n$ to a finite number of marginals thereof, or more practically, to prices of an arbitrary finite set of (joint)…
We give a theory of sublinear expectations and martingales in discrete time. Without assuming the existence of a dominating probability measure, we derive the extensions of classical results on uniform integrability, optional stopping of…
In this note, we develop stock option price approximations for a model which takes both the risk o default and the stochastic volatility into account. We also let the intensity of defaults be influenced by the volatility. We show that it…
We present a graphical analysis of the mechanisms underlying the occurrences of bubbling sequences and bistability regions in the bifurcation scenario of a special class of one dimensional two parameter maps. The main result of the analysis…
This letter derives some new exponential bounds for discrete time, real valued, conditionally symmetric martingales with bounded jumps. The new bounds are extended to conditionally symmetric sub/ supermartingales, and they are compared to…
We study optimal stopping problems related to the pricing of perpetual American options in an extension of the Black-Merton-Scholes model in which the dividend and volatility rates of the underlying risky asset depend on the running values…
This paper studies an equity market of stochastic dimension, where the number of assets fluctuates over time. In such a market, we develop the fundamental theorem of asset pricing, which provides the equivalence of the following statements:…
Trading a financial asset pushes its price as well as the prices of other assets, a phenomenon known as cross-impact. We consider a general class of kernel-based cross-impact models and investigate suitable parameterisations for trading…
In recent years, there has been a substantive interest in rough volatility models. In this class of models, the local behavior of stochastic volatility is much more irregular than semimartingales and resembles that of a fractional Brownian…
Equations of radial motion of a gas bubble in a compressible viscous liquid have been modified to account for compressibility at the bubble boundary. A new bubble boundary equation has been derived, including a new term resulted from liquid…
We consider a discrete-time process adapted to some filtration which lives on a (typically countable) subset of $\mathbb{R}^d$, $d\geq 2$. For this process, we assume that it has uniformly bounded jumps, is uniformly elliptic (can advance…
The calibration of a local volatility models to a given set of option prices is a classical problem of mathematical finance. It was considered in multiple papers where various solutions were proposed. In this paper an extension of the…
We consider fundamental questions of arbitrage pricing arising when the uncertainty model is given by a set of possible mutually singular probability measures. With a single probability model, essential equivalence between the absence of…
We discuss the possibility of obtaining model-free bounds on volatility derivatives, given present market data in the form of a calibrated local volatility model. A counter-example to a wide-spread conjecture is given.
We develop a version of the fundamental theorem of asset pricing for discrete-time markets with proportional transaction costs and model uncertainty. A robust notion of no-arbitrage of the second kind is defined and shown to be equivalent…
We discuss - in what is intended to be a pedagogical fashion - a criterion, which is a lower bound on a certain ratio, for when a stock (or a similar instrument) is not a good investment in the long term, which can happen even if the…