Related papers: The pricing formula for cancellable European optio…
Perpetual American options are financial instruments that can be readily exercised and do not mature. In this paper we study in detail the problem of pricing this kind of derivatives, for the most popular flavour, within a framework in…
Recent empirical studies suggest that the volatility of an underlying price process may have correlations that decay slowly under certain market conditions. In this paper, the volatility is modeled as a stationary process with long-range…
We apply a utility-based method to obtain the value of a finite-time investment opportunity when the underlying real asset is not perfectly correlated to a traded financial asset. Using a discrete-time algorithm to calculate the…
We consider a portfolio with call option and the corresponding underlying asset under the standard assumption that stock-market price represents a random variable with lognormal distribution. Minimizing the variance (hedging risk) of the…
We consider option pricing using a discrete-time Markov switching stochastic volatility with co-jump model, which can model volatility clustering and varying mean-reversion speeds of volatility. For pricing European options, we develop a…
We introduce a general framework for continuous-time betting markets, in which a bookmaker can dynamically control the prices of bets on outcomes of random events. In turn, the prices set by the bookmaker affect the rate or intensity of…
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…
We establish an explicit approximation formula for European put option prices within a general stochastic volatility model with time-dependent parameters. Our methodology is based on expansions of the mixing representation of the put option…
In the present work, the European option pricing SWIFT method is extended for Heston model calibration. The computation of the option price gradient is simplified thanks to the knowledge of the characteristic function in closed form. The…
The paper summarizes key results of the benchmark approach with a focus on the concept of benchmark-neutral pricing. It applies these results to the pricing of an extreme-maturity European put option on a well-diversified stock index. The…
We consider the robust pricing and hedging of American options in a continuous time setting. We assume asset prices are continuous semimartingales, but we allow for general model uncertainty specification via adapted closed convex…
In this work we present a new family of options (mirror options) specially crafted to satisfy the necessities of aggressive speculators. The main ideas behind mirror options are: 1) A product that can be adjusted by the holder to agree with…
In this paper, we price European Call three different option pricing models, where the volatility is dynamically changing i.e. non constant. In stochastic volatility (SV) models for option pricing a closed form approximation technique is…
In this article, we show how the scaling symmetry of the SABR model can be utilized to efficiently price European options. For special kinds of payoffs, the complexity of the problem is reduced by one dimension. For more generic payoffs,…
In this article we present a new approach to the numerical valuation of derivative securities. The method is based on our previous work where we formulated the theory of pricing in terms of tradables. The basic idea is to fit a finite…
In a stochastic volatility framework, we find a general pricing equation for the class of payoffs depending on the terminal value of a market asset and its final quadratic variation. This allows a pricing tool for European-style claims…
Asynchronous iterations arise naturally in parallel computing if one wants to solve large problems with a minimization of the idle times. This paper presents an original model of asynchronous iterations for a time-domain decomposition…
In this paper we provide a theoretical analysis of Variable Annuities with a focus on the holder's right to an early termination of the contract. We obtain a rigorous pricing formula and the optimal exercise boundary for the surrender…
We solve the problem of super-hedging European or Asian options for discrete-time financial market models where executable prices are uncertain. The risky asset prices are not described by single-valued processes but measurable selections…
We introduce a new approach for the numerical pricing of American options. The main idea is to choose a finite number of suitable excessive functions (randomly) and to find the smallest majorant of the gain function in the span of these…