Related papers: On the probability density function of baskets
Employing a recent technique which allows the representation of nonstationary data by means of a juxtaposition of locally stationary patches of different length, we introduce a comprehensive analysis of the key observables in a financial…
We introduce closed-form transition density expansions for multivariate affine jump-diffusion processes. The expansions rely on a general approximation theory which we develop in weighted Hilbert spaces for random variables which possess…
We introduce a class of short-rate models that exhibit a ``higher for longer'' phenomenon. Specifically, the short-rate is modeled as a general time-homogeneous one-factor Markov diffusion on a finite interval. The lower endpoint is assumed…
The risk minimizing problem $\mathbf{E}[l((H-X_T^{x,\pi})^{+})]\overset{\pi}{\longrightarrow}\min$ in the multidimensional Black-Scholes framework is studied. Specific formulas for the minimal risk function and the cost reduction function…
Real life hedging in the Black-Scholes model must be imperfect and if the stock's drift is higher than the risk free rate, leads to a profit on average. Hence the option price is examined as a fair game agreement between the parties, based…
The quotient of random variables with normal distributions is examined and proven to have have power law decay, with density $f\left( x\right) \simeq f_{0}x^{-2}$, with the coefficient depending on the means and variances of the numerator…
We present a novel formalism to characterize elastic heterogeneities in amorphous solids. In particular, we derive high-order strain-energy expansions for pairwise energies under athermal quasistatic dynamics. We then use the presented…
In the compagnion paper [Marginal density expansions for diffusions and stochastic volatility, part I] we discussed density expansions for multidimensional diffusions $(X^1,...,X^d)$, at fixed time $T$ and projected to their first $l$…
Motivated by the work of Segal and Segal on the Black-Scholes pricing formula in the quantum context, we study a quantum extension of the Black-Scholes equation within the context of Hudson-Parthasarathy quantum stochastic calculus. Our…
In this paper we discuss a closed-form approximation of the likelihood functions of an arbitrary diffusion process. The approximation is based on an exponential ansatz of the transition probability for a finite time step $\Delta t$, and a…
This note develops a stochastic model of asset volatility. The volatility obeys a continuous-time autoregressive equation. Conditions under which the process is asymptotically stationary and possesses long memory are characterised.…
The derivation of dynamical laws for general observables (or moments) from the master equation for the probability distribution remains a challenging problem in statistical physics. Here, we present an alternative formulation of the general…
The space of call price functions has a natural noncommutative semigroup structure with an involution. A basic example is the Black--Scholes call price surface, from which an interesting inequality for Black--Scholes implied volatility is…
We consider uncorrelated Stein-Stein, Heston, and Hull-White models and their perturbations by compound Poisson processes with jump amplitudes distributed according to a double exponential law. Similar perturbations of the Black-Scholes…
We study perpetual American option pricing problems in an extension of the Black-Merton-Scholes model in which the dividend and volatility rates of the underlying risky asset depend on the running values of its maximum and maximum drawdown.…
Market illiquidity, feedback effects, presence of transaction costs, risk from unprotected portfolio and other nonlinear effects in PDE based option pricing models can be described by solutions to the generalized Black-Scholes parabolic…
We consider a non-stochastic online learning approach to price financial options by modeling the market dynamic as a repeated game between the nature (adversary) and the investor. We demonstrate that such framework yields analogous…
In Figueroa-L\'opez et al. (2013), a second order approximation for at-the-money (ATM) option prices is derived for a large class of exponential L\'evy models, with or without a Brownian component. The purpose of this article is twofold.…
The possibility that the collective dynamics of a set of stocks could lead to a specific basket violating the efficient market hypothesis is investigated. Precisely, we show that it is systematically possible to form a basket with a…
We consider $N$ Bernoulli random variables, which are independent conditional on a common random factor determining their probability distribution. We show that certain expected functionals of the proportion $L_N$ of variables in a given…