Related papers: A CDS Option Miscellany
We consider a Black-Scholes type equation arising on a pricing model for a multi-asset option with general transaction costs. The pioneering work of Leland is thus extended in two different ways: on the one hand, the problem is…
This paper proposes to model asset price dynamics with a mixture of diffusion processes where the instantaneous volatility of the underlying diffusion process contains a random vector. The marginal probability distributions of the proposed…
The standard Black-Scholes theory of option pricing is extended to cope with underlying return fluctuations described by general probability distributions. A Langevin process and its related Fokker-Planck equation are devised to model the…
We present a dynamic hedging scheme for S&P 500 options, where rebalancing decisions are enhanced by integrating information about the implied volatility surface dynamics. The optimal hedging strategy is obtained through a deep policy…
Transition risk can be defined as the business-risk related to the enactment of green policies, aimed at driving the society towards a sustainable and low-carbon economy. In particular, the value of certain firms' assets can be lower…
We develop closed-form expansions for the implied volatility of VIX options within the class of forward variance models. Our approach builds on weak-approximation techniques for VIX option prices and yields explicit implied volatility…
Emphasizing the statistics of jumps crossing the strike and local time, we develop a decomposition of equity option risk premiums. Operationalizing this theoretical treatment, we equip the pricing kernel process with unspanned risks, embed…
The Black-Scholes theory of option pricing has been considered for many years as an important but very approximate zeroth-order description of actual market behavior. We generalize the functional form of the diffusion of these systems and…
We investigate qualitative and quantitative behavior of a solution of the mathematical model for pricing American style of perpetual put options. We assume the option price is a solution to the stationary generalized Black-Scholes equation…
We propose a distributional formulation of the spanning problem of a multi-asset payoff by vanilla basket options. This problem is shown to have a unique solution if and only if the payoff function is even and absolutely homogeneous, and we…
We introduce a new identification strategy for uncertainty shocks to explain macroeconomic volatility in financial markets. The Chicago Board Options Exchange Volatility Index (VIX) measures market expectations of future volatility, but…
Financial options are contracts that specify the right to buy or sell an underlying asset at a strike price by an expiration date. Standard exchanges offer options of predetermined strike values and trade options of different strikes…
Financial contracts with options that allow the holder to extend the contract maturity by paying an additional fixed amount found many applications in finance. Closed-form solutions for the price of these options have appeared in the…
We reconsider the problem of option pricing using historical probability distributions. We first discuss how the risk-minimisation scheme proposed recently is an adequate starting point under the realistic assumption that price increments…
We develop a model for indifference pricing in derivatives markets where price quotes have bid-ask spreads and finite quantities. The model quantifies the dependence of the prices and hedging portfolios on an investor's beliefs, risk…
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…
Derivative traders are usually required to scan through hundreds, even thousands of possible trades on a daily basis. Up to now, not a single solution is available to aid in their job. Hence, this work aims to develop a trading…
Financial derivatives pricing aims to find the fair value of a financial contract on an underlying asset. Here we consider option pricing in the partial differential equations framework. The contemporary models lead to one-dimensional or…
The downside risk of a portfolio of (equity)assets is generally substantially higher than the downside risk of its components. In particular in times of crises when assets tend to have high correlation, the understanding of this difference…
The author presents alternatives to the Black-Scholes european call option pricing model by incorporating different transaction cost structures in the replicating strategy. In particular, an exponentially decreasing structure is proposed…