Related papers: On the Hedging of Options On Exploding Exchange Ra…
We consider the estimation of binary election outcomes as martingales and propose an arbitrage pricing when one continuously updates estimates. We argue that the estimator needs to be priced as a binary option as the arbitrage valuation…
This paper does not suppose a priori that the evolution of the price of a financial asset is a semimartingale. Since possible strategies of investors are self-financing, previous prices are forced to be finite quadratic variation processes.…
We consider a global market constituted by several submarkets, each with its own assets and num\'eraire. We provide theoretical foundations for the existence of equivalent martingale measures and results on superreplication prices which…
This paper studies the problem of option replication in general stochastic volatility markets with transaction costs, using a new specification for the volatility adjustment in Leland's algorithm \cite{Leland}. We prove several limit…
We derive a forward partial integro-differential equation for prices of call options in a model where the dynamics of the underlying asset under the pricing measure is described by a -possibly discontinuous- semimartingale. A uniqueness…
In exponential semi-martingale setting for risky asset we estimate the difference of prices of options when initial physical measure $P$ and corresponding martingale measure $Q$ change to $\tilde{P}$ and $\tilde{Q}$ respectively. Then, we…
Fast pricing of American-style options has been a difficult problem since it was first introduced to financial markets in 1970s, especially when the underlying stocks' prices follow some jump-diffusion processes. In this paper, we propose a…
We design three continuous--time models in finite horizon of a commodity price, whose dynamics can be affected by the actions of a representative risk--neutral producer and a representative risk--neutral trader. Depending on the model, the…
We find the variance-optimal equivalent martingale measure when multivariate assets are modeled by a regime-switching geometric Brownian motion, and the regimes are represented by a homogeneous continuous time Markov chain. Under this new…
Quanto options allow the buyer to exchange the foreign currency payoff into the domestic currency at a fixed exchange rate. We investigate quanto options with multiple underlying assets valued in different foreign currencies each with a…
We establish a super-replication duality in a continuous-time financial model where an investor's trades adversely affect bid- and ask-prices for a risky asset and where market resilience drives the resulting spread back towards zero at an…
In this paper we study the pricing of exchange options when underlying assets have stochastic volatility and stochastic correlation. An approximation using a closed-form approximation based on a Taylor expansion of the conditional price is…
In this paper we develop numerical pricing methodologies for European style Exchange Options written on a pair of correlated assets, in a market with finite liquidity. In contrast to the standard multi-asset Black-Scholes framework, trading…
The calibration of volatility models from observable option prices is a fundamental problem in quantitative finance. The most common approach among industry practitioners is based on the celebrated Dupire's formula [6], which requires the…
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…
We consider the robust pricing and hedging of American options in a continuous time setting. We assume asset prices are continuous semimartingales, but we allow for general model uncertainty specification via adapted closed convex…
We consider the problem of finding consistent upper price bounds and super replication strategies for exotic options, given the observation of call prices in the market. This field of research is called model-independent finance and has…
We propose a constructive framework for the super-hedging problem of a European contingent claim under proportional transaction costs in discrete time. Our main contribution is an explicit recursive scheme that computes both the…
Some expansion methods have been proposed for approximately pricing options which has no exact closed formula. Benhamou et al. (2010) presents the smart expansion method that directly expands the expectation value of payoff function with…
Quadratic hedging of option payoffs generates the variance optimal martingale measure. When an option features an exercise policy and its cash flows are hedged according to this approach, it may be tempting to optimize such a policy under…