Related papers: The pricing formula for cancellable European optio…
In this article, a compact finite difference method is proposed for pricing European and American options under jump-diffusion models. Partial integro-differential equation and linear complementary problem governing European and American…
This paper studies the valuation of European contingent claims with short selling bans under the equal risk pricing (ERP) framework proposed in Guo and Zhu (2017) where analytical pricing formulae were derived in the case of monotonic…
We consider an auction market in which market makers fill the order book during a given time period while some other investors send market orders. We define the clearing price of the auction as the price maximizing the exchanged volume at…
We consider the pricing of derivatives in a setting with trading restrictions, but without any probabilistic assumptions on the underlying model, in discrete and continuous time. In particular, we assume that European put or call options…
We consider the super-hedging price of an American option in a discrete-time market in which stocks are available for dynamic trading and European options are available for static trading. We show that the super-hedging price $\pi$ is given…
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…
The voting process is formalized as a multistage voting model with successive alternative elimination. A finite number of agents vote for one of the alternatives each round subject to their preferences. If the number of votes given to the…
In this article, we investigate the behavior of long-term options. In many cases, option prices follow an exponential decay (or growth) rate for further maturity dates. We determine under what conditions option prices are characterized by…
In this note, we develop stock option price approximations for a model which takes both the risk o default and the stochastic volatility into account. We also let the intensity of defaults be influenced by the volatility. We show that it…
This paper uses recent results on continuous-time finite-horizon optimal switching problems with negative switching costs to prove the existence of a saddle point in an optimal stopping (Dynkin) game. Sufficient conditions for the game's…
It is well known how to determine the price of perpetual American options if the underlying stock price is a time-homogeneous diffusion. In the present paper we consider the inverse problem, that is, given prices of perpetual American…
In this paper, we demonstrate that policy iteration, introduced in the context of HJB equations in [Forsyth & Labahn, 2007], is an extremely simple generic algorithm for solving linear complementarity problems resulting from the finite…
The main objective of this paper is to present an algorithm of pricing perpetual American put options with asset-dependent discounting. The value function of such an instrument can be described as \begin{equation*}…
Random-expiry options are nontraditional derivative contracts that may expire early based on a random event. We develop a methodology for pricing these options using a trinomial tree, where the middle path is interpreted as early expiry. We…
It is shown how to obtain accurate values for American options using Monte Carlo simulation. The main feature of the novel algorithm consists of tracking the boundary between exercise and hold regions via optimization of a certain payoff…
Employee stock options (ESOs) are American-style call options that can be terminated early due to employment shock. This paper studies an ESO valuation framework that accounts for job termination risk and jumps in the company stock price.…
A growing body of literature suggests that heavy tailed distributions represent an adequate model for the observations of log returns of stocks. Motivated by these findings, here we develop a discrete time framework for pricing of European…
In this paper we derive an easily computed approximation to European basket call prices for a local volatility jump-diffusion model. We apply the asymptotic expansion method to find the approximate value of the lower bound of European…
Recorded option pricing datasets are not always freely available. Additionally, these datasets often contain numerous prices which are either higher or lower than can reasonably be expected. Various reasons for these unexpected observations…
We propose a statistical framework for quantifying the importance of single events that do not provide intermediate rewards but offer implicit incentives through the reward structure at the end of a multi-event contest. Applying the…