Related papers: Bridge Copula Model for Option Pricing
In this paper we present an algorithm for pricing barrier options in one-dimensional Markov models. The approach rests on the construction of an approximating continuous-time Markov chain that closely follows the dynamics of the given…
We present two models for incorporating the total effect of market microstructure noise into dynamic pricing of assets and European options. The first model is developed under a Black-Scholes-Merton, continuous-time framework. The second…
We propose a generalization of the Bass diffusion model in discrete-time that explicitly models the effect of price in adoption. Our model is different from earlier price-incorporated models and fits well to adoption data for various…
Using tools from spectral analysis, singular and regular perturbation theory, we develop a systematic method for analytically computing the approximate price of a derivative-asset. The payoff of the derivative-asset may be path-dependent.…
In this paper we discuss the basket options valuation for a jump-diffusion model. The underlying asset prices follow some correlated local volatility diffusion processes with systematic jumps. We derive a forward partial integral…
We show how to price and replicate a variety of barrier-style claims written on the $\log$ price $X$ and quadratic variation $\langle X \rangle$ of a risky asset. Our framework assumes no arbitrage, frictionless markets and zero interest…
We consider a method of lines (MOL) approach to determine prices of European and American exchange options when underlying asset prices are modelled with stochastic volatility and jump-diffusion dynamics. As the MOL, as with any other…
We present a unified, market-complete model that integrates both the Bachelier and Black-Scholes-Merton frameworks for asset pricing. The model allows for the study, within a unified framework, of asset pricing in a natural world that…
Pricing of financial derivatives, in particular early exercisable options such as Bermudan options, is an important but heavy numerical task in financial institutions, and its speed-up will provide a large business impact. Recently,…
We present a general derivation of the arbitrage-free pricing framework for multiple-currency collateralized products. We include the impact on option pricing of the policy adopted to fund in foreign currency, so that we are able to price…
Exponential L\'evy processes have been used for modelling financial derivatives because of their ability to exhibit many empirical features of markets. Using their multidimensional analogue, a general analytic pricing formula is obtained,…
We are interested in the existence of equivalent martingale measures and the detection of arbitrage opportunities in markets where several multi-asset derivatives are traded simultaneously. More specifically, we consider a financial market…
The proposed model modifies option pricing formulas for the basic case of log-normal probability distribution providing correspondence to formulated criteria of efficiency and completeness. The model is self-calibrating by historic…
A new framework for asset pricing based on modelling the information available to market participants is presented. Each asset is characterised by the cash flows it generates. Each cash flow is expressed as a function of one or more…
In this paper we propose an efficient method to compute the price of multi-asset American options, based on Machine Learning, Monte Carlo simulations and variance reduction technique. Specifically, the options we consider are written on a…
We introduce a new diffusion process Xt to describe asset prices within an economic bubble cycle. The main feature of the process, which differs from existing models, is the drift term where a mean-reversion is taken based on an exponential…
We develop a new analysis for portfolio optimisation with options, tackling the three fundamental issues with this problem: asymmetric options' distributions, high dimensionality and dependence structure. To do so, we propose a new…
In the present paper, we introduce a numerical scheme for the price of a barrier option when the price of the underlying follows a diffusion process. The numerical scheme is based on an extension of a static hedging formula of barrier…
Financial derivative pricing is a significant challenge in finance, involving the valuation of instruments like options based on underlying assets. While some cases have simple solutions, many require complex classical computational methods…
We present an option pricing formula for European options in a stochastic volatility model. In particular, the volatility process is defined using a fractional integral of a diffusion process and both the stock price and the volatility…