Related papers: Lower Bound Approximation to Basket Option Values …
We present closed analytical approximations for the pricing of Asian basket spread options under the Black-Scholes model. The formulae are obtained by using a stochastic Taylor expansion around a log-normal proxy model and are found to be…
This paper studies equity basket options -- i.e., multi-dimensional derivatives whose payoffs depend on the value of a weighted sum of the underlying stocks -- and develops a new and innovative approach to ensure consistency between options…
We present a detailed analysis and implementation of a splitting strategy to identify simultaneously the local-volatility surface and the jump-size distribution from quoted European prices. The underlying model consists of a jump-diffusion…
In this article, we provide representations of European and American exchange option prices under stochastic volatility jump-diffusion (SVJD) dynamics following models by Merton (1976), Heston (1993), and Bates (1996). A Radon-Nikodym…
We study option prices in financial markets where the risky asset prices are modelled by jump diffusions. It was proposed by Schweizer (1996) in a general semimartingale setting, following earlier works by F\"ollmer and Sondermann (1986)…
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…
A stochastic model for pure-jump diffusion (the compound renewal process) can be used as a zero-order approximation and as a phenomenological description of tick-by-tick price fluctuations. This leads to an exact and explicit general…
In the present paper we present a finite element approach for option pricing in the framework of a well-known stochastic volatility model with jumps, the Bates model. In this model the asset log-returns are assumed to follow a…
We present a study of the short-maturity asymptotics for VIX and European option prices in local-stochastic volatility models with compound Poisson jumps. Both out-of-the-money (OTM) and at-the-money (ATM) asymptotics are considered. The…
This paper sets out to provide a general framework for the pricing of average-type options via lower and upper bounds. This class of options includes Asian, basket and options on the volume-weighted average price. We demonstrate that in…
Using neural networks, we compute bounds on the prices of multi-asset derivatives given information on prices of related payoffs. As a main example, we focus on European basket options and include information on the prices of other similar…
The Heston stochastic-local volatility model, consisting of a asset price process and a Cox--Ingersoll--Ross-type variance process, offers a wide range of applications in the financial industry. The pursuit for efficient model evaluation…
We examine the small expiry behaviour of European call options in stock price models of exponential L\'evy type. In most cases of interest, we are able to identify the exact small expiry asymptotics. In "complete generality" we are able to…
Theoretical models applied to option pricing should take into account the empirical characteristics of the underlying financial time series. In this paper, we show how to price basket options when assets follow a shifted log-normal process…
When the underlying stock price is a strict local martingale process under an equivalent local martingale measure, Black-Scholes PDE associated with an European option may have multiple solutions. In this paper, we study an approximation…
In this paper we derive a generic decomposition of the option pricing formula for models with finite activity jumps in the underlying asset price process (SVJ models). This is an extension of the well-known result by Alos (2012) for Heston…
Jump diffusion processes are widely used to model asset prices over time, mainly for their ability to capture complex discontinuous behavior, but inference on the model parameters remains a challenge. Here our goal is posterior inference on…
In the present work, we propose a new multifactor stochastic volatility model in which slow factor of volatility is approximated by a parabolic arc. We retain ourselves to the perturbation technique to obtain approximate expression for…
In this paper we propose an efficient method to compute the price of multi-asset American options, based on Machine Learning, Monte Carlo simulations and variance reduction technique. Specifically, the options we consider are written on a…
Most models for barrier pricing are designed to let a market maker tune the model-implied covariance between moves in the asset spot price and moves in the implied volatility skew. This is often implemented with a local…