Related papers: Stock Price Dynamics and Option Valuations under V…
In this article, we look at the effect of volatility clustering on the risk indifference price of options described by Sircar and Sturm in their paper (Sircar, R., & Sturm, S. (2012). From smile asymptotics to market risk measures.…
Financial time series exhibit a number of interesting properties that are difficult to explain with simple models. These properties include fat-tails in the distribution of price fluctuations (or returns) that are slowly removed at longer…
The volatility characterizes the amplitude of price return fluctuations. It is a central magnitude in finance closely related to the risk of holding a certain asset. Despite its popularity on trading floors, the volatility is unobservable…
We study the dependence of volatility on the stock price in the stochastic volatility framework on the example of the Heston model. To be more specific, we consider the conditional expectation of variance (square of volatility) under fixed…
The dynamics of market prices is described as the evolution of opinions in the trading community regarding future market behavior. The price then is a function of the voting process of the market players in favor to raise or reduce the…
We study the impact of oil price shocks on the U.S. stock market volatility. We jointly analyze three different structural oil market shocks (i.e., aggregate demand, oil supply, and oil-specific demand shocks) and stock market volatility…
This paper performs the numerical analysis and the computation of a Spread option in a market with imperfect liquidity. The number of shares traded in the stock market has a direct impact on the stock's price. Thus, we consider a…
We investigate the random walk of prices by developing a simple model relating the properties of the signs and absolute values of individual price changes to the diffusion rate (volatility) of prices at longer time scales. We show that this…
We provided an analytical representation of the price of a barrier option with one type of special moving barrier. We consider the case that risk free rate, dividend rate and stock volatility are time dependent. We get a pricing formula and…
In informationally efficient financial markets, option prices and this implied volatility should immediately be adjusted to new information that arrives along with a jump in underlying's return, whereas gradual changes in implied volatility…
We analyze the relative price change of assets starting from basic supply/demand considerations subject to arbitrary motivations. The resulting stochastic differential equation has coefficients that are functions of supply and demand. We…
In this note, we develop stock option price approximations for a model which takes both the risk o default and the stochastic volatility into account. We also let the intensity of defaults be influenced by the volatility. We show that it…
We study a market model in which the volatility of the stock may jump at a random time from a fixed value to another fixed value. This model was already described in the literature. We present a new approach to the problem, based on partial…
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…
Recent empirical studies suggest that the volatilities associated with financial time series exhibit short-range correlations. This entails that the volatility process is very rough and its autocorrelation exhibits sharp decay at the…
The aim of this paper is to present a simple stochastic model that accounts for the effects of a long-memory in volatility on option pricing. The starting point is the stochastic Black-Scholes equation involving volatility with long-range…
In February 2018, the VIX index has seen its largest ever increase and has lead to significant losses for some major volatility related products. Despite many efforts, the precise underlying reasons are yet to be discovered. We study the…
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…
Using Trades and Quotes data from the Paris stock market, we show that the random walk nature of traded prices results from a very delicate interplay between two opposite tendencies: long-range correlated market orders that lead to…
In this paper, we focus on option pricing models based on space-time fractional diffusion. We briefly revise recent results which show that the option price can be represented in the terms of rapidly converging double-series and apply these…