Related papers: Bridge Copula Model for Option Pricing
This paper introduces an innovative method for constructing copula models capable of describing arbitrary non-monotone dependence structures. The proposed method enables the creation of such copulas in parametric form, thus allowing the…
The BS equations with fractional order two asset price models give a better prediction of options pricing in the monetary market. In this paper, the changed form of BS-condition with two asset price models dependent on the Liovelle-Caputo…
In this paper, we introduce a novel framework to model the exchange rate dynamics between two intrinsically linked cryptoassets, such as stablecoins pegged to the same fiat currency or a liquid staking token and its associated native token.…
We present a Monte Carlo approach to pairs trading on mean-reverting spreads modeled by L\'evy-driven Ornstein-Uhlenbeck processes. Specifically, we focus on using a variance gamma driving process, an infinite activity pure jump process to…
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…
In this paper, we introduce two novel methods to solve the American-style option pricing problem and its dual form at the same time using neural networks. Without applying nested Monte Carlo, the first method uses a series of neural…
Probabilistic forecasting is crucial in multivariate financial time-series for constructing efficient portfolios that account for complex cross-sectional dependencies. In this paper, we propose Diffolio, a diffusion model designed for…
The main objective of this paper is to present an algorithm of pricing perpetual American put options with asset-dependent discounting. The value function of such an instrument can be described as \begin{equation*}…
The Multiplicative Error Model (Engle (2002)) for nonnegative valued processes is specified as the product of a (conditionally autoregressive) scale factor and an innovation process with nonnegative support. A multivariate extension allows…
Using a suitable change of probability measure, we obtain a novel Poisson series representation for the arbitrage- free price process of vulnerable contingent claims in a regime-switching market driven by an underlying continuous- time…
With a view to statistical inference for discretely observed diffusion models, we propose simple methods of simulating diffusion bridges, approximately and exactly. Diffusion bridge simulation plays a fundamental role in likelihood and…
Risk assessment and in particular derivatives pricing is one of the core areas in computational finance and accounts for a sizeable fraction of the global computing resources of the financial industry. We outline a quantum-inspired…
We derive asymptotic expansions for the prices of a variety of European and barrier-style claims in a general local-stochastic volatility setting. Our method combines Taylor series expansions of the diffusion coefficients with an expansion…
This research addresses accurate option pricing by employing models beyond the traditional Black-Scholes framework. While Black-Scholes provides a closed-form solution, it is limited by assumptions of constant volatility, no dividends, and…
We consider the task of generating discrete-time realisations of a nonlinear multivariate diffusion process satisfying an It\^o stochastic differential equation conditional on an observation taken at a fixed future time-point. Such…
A derivative is a financial security whose value is a function of underlying traded assets and market outcomes. Pricing a financial derivative involves setting up a market model, finding a martingale (``fair game") probability measure for…
We propose a new jump-diffusion process, the Heston-Queue-Hawkes (HQH) model, combining the well-known Heston model and the recently introduced Queue-Hawkes (Q-Hawkes) jump process. Like the Hawkes process, the HQH model can capture the…
In this short paper, in order to price occupation-time options, such as (double-barrier) step options and quantile options, we derive various joint distributions of a mixed-exponential jump-diffusion process and its occupation times of…
This paper is a contribution to the Proceedings of the Workshop Complexity, Metastability and Nonextensivity held in Erice 20-26 July 2004, to be published by World Scientific. We propose a generalization to Merton's model for evaluating…
Differentiable economics -- the use of deep learning for auction design -- has driven progress in the automated design of multi-item auctions with additive or unit-demand valuations. However, little progress has been made for optimal…