Related papers: Why are quadratic normal volatility models analyti…
Exponential functionals of Brownian motion have been extensively studied in financial and insurance mathematics due to their broad applications, for example, in the pricing of Asian options. The Black-Scholes model is appealing because of…
This paper concerns a local volatility model in which volatility takes two possible values, and the specific value depends on whether the underlying price is above or below a given threshold value. The model is known, and a number of…
The problem of non-stationarity in financial markets is discussed and related to the dynamic nature of price volatility. A new measure is proposed for estimation of the current asset volatility. A simple and illustrative explanation is…
We investigate exponential stock models driven by tempered stable processes, which constitute a rich family of purely discontinuous L\'{e}vy processes. With a view of option pricing, we provide a systematic analysis of the existence of…
In this article we look at stochastic processes with uncertain parameters, and consider different ways in which information is obtained when carrying out observations. For example we focus on the case of a the random evolution of a traded…
Most of the empirical studies on stochastic volatility dynamics favor the 3/2 specification over the square-root (CIR) process in the Heston model. In the context of option pricing, the 3/2 stochastic volatility model is reported to be able…
For option pricing models and heavy-tailed distributions, this study proposes a continuous-time stochastic volatility model based on an arithmetic Brownian motion: a one-parameter extension of the normal stochastic alpha-beta-rho (SABR)…
Following a Geometrical Brownian Motion extension into an Irrational Fractional Brownian Motion model, we re-examine agent behaviour reacting to time dependent news on the log-returns thereby modifying a financial market evolution. We…
The Geometric Brownian Motion (GBM) is a standard model in quantitative finance, but the potential function of its stochastic differential equation (SDE) cannot include stable nonzero prices. This article generalises the GBM to an SDE with…
The purpose of this paper is to analyze the problem of option pricing when the short rate follows subdiffusive fractional Merton model. We incorporate the stochastic nature of the short rate in our option valuation model and derive explicit…
We calculate the realized volatility in the spin model of financial markets and examine the returns standardized by the realized volatility. We find that moments of the standardized returns agree with the theoretical values of standard…
We study linear perturbations of classically stable Q-balls in theories admitting analytic solutions. Although the corresponding boundary value problem is non-Hermitian, the analysis of perturbations can also be performed analytically in…
We develop a theoretical trading conditioning model subject to price volatility and return information in terms of market psychological behavior, based on analytical transaction volume-price probability wave distributions in which we use…
This work considers a stochastic model in which the uncertainty is driven by a multidimensional Brownian motion. The market price of risk process makes the transition between real world probability measure and risk neutral probability…
Predicting volatility is important for asset predicting, option pricing and hedging strategies because it cannot be directly observed in the financial market. The Black-Scholes option pricing model is one of the most widely used models by…
Contrary to the claims made by several authors, a financial market model in which the price of a risky security follows a reflected geometric Brownian motion is not arbitrage-free. In fact, such models violate even the weakest no-arbitrage…
This article studies the finite sample behaviour of a number of estimators for the integrated power volatility process of a Brownian semistationary process in the non semi-martingale setting. We establish three consistent feasible…
This work deals with the overdamped motion of a particle in a fluctuating one-dimensional periodic potential. If the potential has no inversion symmetry and its fluctuations are asymmetric and correlated in time, a net flow can be generated…
This paper considers the asset price p as relations C=pV between the value C and the volume V of the executed transactions and studies the consequences of this definition for the option pricing equations. We show that the classical BSM…
The Black-Litterman model is a framework for incorporating forward-looking expert views in a portfolio optimization problem. Existing work focuses almost exclusively on single-period problems with the forecast horizon matching that of the…