Related papers: Can there be an explicit formula for implied volat…
We show how the prices of options can be determined with the help of double-fractional differential equation in such a way that their inclusion in a portfolio of stocks provides a more reliable hedge against dramatic price drops that the…
The growth of the exhange-traded fund (ETF) industry has given rise to the trading of options written on ETFs and their leveraged counterparts {(LETFs)}. We study the relationship between the ETF and LETF implied volatility surfaces when…
We define what "Price Impact" means, and how it is measured and modelled in the recent literature. Although this notion seems to convey the idea of a forceful and intuitive mechanism, we discuss why things might not be that simple.…
This paper develops a model that incorporates the presence of stochastic arbitrage explicitly in the Black--Scholes equation. Here, the arbitrage is generated by a stochastic bubble, which generalizes the deterministic arbitrage model…
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…
The aim of this article is twofold: give a short proof of the existence of real spectral shift function and the associated trace formula for a pair of contractions, the difference of which is trace-class and one of the two a strict…
This paper develops a European option pricing formula for fractional market models. Although there exist option pricing results for a fractional Black-Scholes model, they are established without accounting for stochastic volatility. In this…
Classical (It\^o diffusions) stochastic volatility models are not able to capture the steepness of small-maturity implied volatility smiles. Jumps, in particular exponential L\'evy and affine models, which exhibit small-maturity exploding…
Scoring functions are commonly used to evaluate a point forecast of a particular statistical functional. This scoring function should be consistent, meaning the correct value of the functional is the Bayes act, in which case we say the…
This work generalizes the subdiffusive Black-Scholes model by introducing the variable exponent in order to provide adequate descriptions for the option pricing, where the variable exponent may account for the variation of the memory…
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…
We compare static arbitrage price bounds on basket calls, i.e. bounds that only involve buy-and-hold trading strategies, with the price range obtained within a multi-variate generalization of the Black-Scholes model. While there is no gap…
The implied volatility skew has received relatively little attention in the literature on short-term asymptotics for financial models with jumps, despite its importance in model selection and calibration. We rectify this by providing…
We study the risk premium impact in the Perturbative Black Scholes model. The Perturbative Black Scholes model, developed by Scotti, is a subjective volatility model based on the classical Black Scholes one, where the volatility used by the…
An implicit operation of a class of similar algebras $\mathsf{K}$ is a collection of first order definable partial functions on the members of $\mathsf{K}$ that is globally preserved by homomorphisms. For instance, "taking inverses" can be…
The purpose of this paper is to analyze and compute the early exercise boundary for a class of nonlinear Black--Scholes equations with a nonlinear volatility which can be a function of the second derivative of the option price itself. A…
In this study we prove the existence of statistical arbitrage opportunities in the Black-Scholes framework by considering trading strategies that consists of borrowing from the risk free rate and taking a long position in the stock until it…
We consider a model of linear market impact, and address the problem of replicating a contingent claim in this framework. We derive a non-linear Black-Scholes Equation that provides an exact replication strategy. This equation is fully…
Volatility clustering, long-range dependence, and non-Gaussian scaling are stylized facts of financial assets dynamics. They are ignored in the Black & Scholes framework, but have a relevant impact on the pricing of options written on…
A new mathematical model for the Black-Scholes equation is proposed to forecast option prices. This model includes new interval for the price of the underlying stock as well as new initial and boundary conditions. Conventional notions of…