Related papers: Heat Kernel Framework for Asset Pricing in Finite …
The collective phenomena of a liquid market is characterized in terms of a particle system scenario. This physical analogy enables us to disentangle intrinsic features from purely stochastic ones. The latter are the result of environmental…
Spot option prices, forwards and options on forwards relevant for the commodity markets are computed when the underlying process S is modelled as an exponential of a process {\xi} with memory as e.g. a L\'evy semi-stationary process.…
This paper investigates how realized and option implied volatilities are related to the future quantiles of commodity returns. Whereas realized volatility measures ex-post uncertainty, volatility implied by option prices reveals the…
Risk assessment and in particular derivatives pricing is one of the core areas in computational finance and accounts for a sizeable fraction of the global computing resources of the financial industry. We outline a quantum-inspired…
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 propose and investigate two model classes for forward power price dynamics, based on continuous branching processes with immigration, and on Hawkes processes with exponential kernel, respectively. The models proposed exhibit jumps…
We propose a Markov jump process with the three-state herding interaction. We see our approach as an agent-based model for the financial markets. Under certain assumptions this agent-based model can be related to the stochastic description…
Classical option pricing schemes assume that the value of a financial asset follows a geometric Brownian motion (GBM). However, a growing body of studies suggest that a simple GBM trajectory is not an adequate representation for asset…
A data-driven approach called CaNN (Calibration Neural Network) is proposed to calibrate financial asset price models using an Artificial Neural Network (ANN). Determining optimal values of the model parameters is formulated as training…
Regime-switching models, in particular Hidden Markov Models (HMMs) where the switching is driven by an unobservable Markov chain, are widely-used in financial applications, due to their tractability and good econometric properties. In this…
Identifying the structural dependence between the cryptocurrencies and predicting market trend are fundamental for effective portfolio management in cryptocurrency trading. In this paper, we present a unified Bayesian framework based on…
We formulate a forward inflation index model with multi-factor volatility structure featuring a parametric form that allows calibration to correlations between indices of different tenors observed in the market. Assuming the nominal…
The potential approach is a general and simple method for modelling interest rates, foreign exchange rates, and in principle other types of financial assets. This paper takes data on some liquid interest rate derivatives, and fits potential…
Option pricing is an integral part of modern financial risk management. The well-known Black and Scholes (1973) formula is commonly used for this purpose. This paper is an attempt to extend their work to a situation in which the…
A Markovian modulation captures the trend in the market and influences the market coefficients accordingly. The different scenarios presented by the market are modeled as the distinct states of a discrete-time Markov chain. In our paper, we…
In this paper, we study the pricing of contracts in fixed income markets under volatility uncertainty in the sense of Knightian uncertainty or model uncertainty. The starting point is an arbitrage-free bond market under volatility…
Pricing formulae for defaultable corporate bonds with discrete coupons under consideration of the government taxes in the united model of structural and reduced form models are provided. The aim of this paper is to generalize the…
In this paper, we establish a market model for the term structure of forward inflation rates based on the risk-neutral dynamics of nominal and real zero-coupon bonds. Under the market model, we can price inflation caplets as well as…
This review presents the set of electricity price models proposed in the literature since the opening of power markets. We focus on price models applied to financial pricing and risk management. We classify these models according to their…
Accurately forecasting the price of oil, the world's most actively traded commodity, is of great importance to both academics and practitioners. We contribute by proposing a functional time series based method to model and forecast oil…