Related papers: Option pricing, Bayes risks and Applications
Our goal is to analyze the system of Hamilton-Jacobi-Bellman equations arising in derivative securities pricing models. The European style of an option price is constructed as a difference of the certainty equivalents to the value functions…
In this paper we investigate a class of swing options with firm constraints in view of the modeling of supply agreements. We show, for a fully general payoff process, that the premium, solution to a stochastic control problem, is concave…
The classical linear Black--Scholes model for pricing derivative securities is a popular model in financial industry. It relies on several restrictive assumptions such as completeness, and frictionless of the market as well as the…
In the previous paper (Inverse Problems, 32, 015010, 2016), a new heuristic mathematical model was proposed for accurate forecasting of prices of stock options for 1-2 trading days ahead of the present one. This new technique uses the…
Bayesian statistics is an integral part of contemporary applied science. bayesics provides a single framework, unified in syntax and output, for performing the most commonly used statistical procedures, ranging from one- and two-sample…
We consider a method of lines (MOL) approach to determine prices of European and American exchange options when underlying asset prices are modelled with stochastic volatility and jump-diffusion dynamics. As the MOL, as with any other…
The distribution of a time integral of geometric Brownian motion is not well understood. To price an Asian option and to obtain measures of its dependence on the parameters of time, strike price, and underlying market price, it is essential…
Algorithmic pricing is the computational problem that sellers (e.g., in supermarkets) face when trying to set prices for their items to maximize their profit in the presence of a known demand. Guruswami et al. (2005) propose this problem…
We consider the problem of approximation of density functions which is important in the theory of pricing of basket options. Our method is well adopted to the multidimensional case. Observe that implementations of polynomial and spline…
One of the shortcomings of the Black and Scholes model on option pricing is the assumption that trading of the underlying asset does not affect the price of that asset. This assumption can be fulfilled only in perfectly liquid markets.…
Motivated by the Corns-Satchell, continuous time, option pricing model, we develop a binary tree pricing model with underlying asset price dynamics following It\^o-Mckean skew Brownian motion. While the Corns-Satchell market model is…
We consider assets for which price $X_t$ and squared volatility $Y_t$ are jointly driven by Heston joint stochastic differential equations (SDEs). When the parameters of these SDEs are estimated from $N$ sub-sampled data $(X_{nT}, Y_{nT})$,…
The paper investigates the performance of the European option price when the log asset price follows a rich class of Generalized Tempered Stable (GTS) distribution. The GTS distribution is an alternative to Normal distribution and…
Option contracts are a type of financial derivative that allow investors to hedge risk and speculate on the variation of an asset's future market price. In short, an option has a particular payout that is based on the market price for an…
The aim of this paper is to investigate the use of close formula approximation for pricing European mortgage options. Under the assumption of logistic duration and normal mortgage rates the underlying price at the option expiry is…
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…
Option pricing is mainly based on ideal market conditions which are well represented by the Geometric Brownian Motion (GBM) as market model. We study the effect of non-ideal market conditions on the price of the option. We focus our…
Suppose one buys two very similar stocks and is curious about how much, after some time T, one of them will contribute to the overall asset, expecting, of course, that it should be around 1/2 of the sum. Here we examine this question within…
This paper presents a framework of imitating the principal investor's behavior for optimal pricing and hedging options. We construct a non-deterministic Markov decision process for modeling stock price change driven by the principal…
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…