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This paper considers a portfolio optimization problem in which asset prices are represented by SDEs driven by Brownian motion and a Poisson random measure, with drifts that are functions of an auxiliary diffusion factor process. The…
In this paper we employ deep learning techniques to detect financial asset bubbles by using observed call option prices. The proposed algorithm is widely applicable and model-independent. We test the accuracy of our methodology in numerical…
We develop a recursive approach for deriving closed-form solutions to both conditional and unconditional moments of affine jump diffusions with state-independent jump intensities. Using these moment solutions, we construct closed-form…
The usage of a spot volatility estimate based on a volatility decomposition in a time-changed price-model according to the trading times is investigated. In this model clock-time volatility splits up into the product of tick-time volatility…
In this paper we analyze a nonlinear Black--Scholes model for option pricing under variable transaction costs. The diffusion coefficient of the nonlinear parabolic equation for the price $V$ is assumed to be a function of the underlying…
The distribution of price returns for a class of uncorrelated diffusive dynamics is considered. The basic assumptions are (1) that there is a "consensus" value associated with a stock, and (2) that the rate of diffusion depends on the…
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 model continuous-time information flows generated by a number of information sources that switch on and off at random times. By modulating a multi-dimensional L\'evy random bridge over a random point field, our framework relates the…
In this paper we consider the problem of calculating the quantiles of a risky position, the dynamic of which is described as a continuous time regime-switching jump-diffusion, by using Fourier Transform methods. Furthermore, we study a…
In this paper we consider two processes driven by diffusions and jumps. The jump components are Levy processes and they can both have finite activity and infinite activity. Given discrete observations we estimate the covariation between the…
The cryptocurrency market is volatile, non-stationary and non-continuous. Together with liquid derivatives markets, this poses a unique opportunity to study risk management, especially the hedging of options, in a turbulent market. We study…
Despite significant advancements in machine learning for derivative pricing, the efficient and accurate valuation of American options remains a persistent challenge due to complex exercise boundaries, near-expiry behavior, and intricate…
The ambipolar diffusion approximation is used to model partially ionised plasma dynamics in a single fluid setting. To correctly apply the commonly used version of ambipolar diffusion, a set of criteria should be satisfied including the…
We consider the optimal investment problem when the traded asset may default, causing a jump in its price. For an investor with constant absolute risk aversion, we compute indifference prices for defaultable bonds, as well as a price for…
We propose a new concept of modulated bipower variation for diffusion models with microstructure noise. We show that this method provides simple estimates for such important quantities as integrated volatility or integrated quarticity.…
In the present paper we construct stock price processes with the same marginal log-normal law as that of a geometric Brownian motion and also with the same transition density (and returns' distributions) between any two instants in a given…
In this paper, a pricing formula for volatility swaps is delivered when the underlying asset follows the stochastic volatility model with jumps and stochastic intensity. By using Feynman-Kac theorem, a partial integral differential equation…
This paper shows that jumps in financial asset prices are often erroneously identified and are, in fact, rare events accounting for a very small proportion of the total price variation. We apply new econometric techniques to a comprehensive…
We provide an European option pricing formula written in the form of an infinite series of Black Scholes type terms under double Levy jumps model, where both the interest rate and underlying price are driven by Levy process. The series…
We establish a nondominated version of the optional decomposition theorem in a setting that includes jump processes with nonvanishing diffusion as well as general continuous processes. This result is used to derive a robust superhedging…