Related papers: Efficient valuation method for the SABR model
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 focuses on variable selection for a partially linear single-index varying-coefficient model. A regularized variable selection procedure by combining basis function approximations with SCAD penalty is proposed. It can…
Monte Carlo Approaches for calculating Value-at-Risk (VaR) are powerful tools widely used by financial risk managers across the globe. However, they are time consuming and sometimes inaccurate. In this paper, a fast and accurate Monte Carlo…
We consider the problem of choosing prices of a set of products so as to maximize profit, taking into account self-elasticity and cross-elasticity, subject to constraints on the prices. We show that this problem can be formulated as…
Our goal here is to discuss the pricing problem of European and American options in discrete time using elementary calculus so as to be an easy reference for first year undergraduate students. Using the binomial model we compute the fair…
Despite the empirical success of the rough Bergomi (rBergomi) model in modeling volatility dynamics, its practical use remains challenging due to high computational complexity in both pricing and calibration arising from its non-Markovian…
Artificial neural networks (ANNs) have recently also been applied to solve partial differential equations (PDEs). In this work, the classical problem of pricing European and American financial options, based on the corresponding PDE…
In this paper, we consider an exponential scalar auxiliary variable (E-SAV) approach to obtain energy stable schemes for a class of phase field models. This novel auxiliary variable method based on exponential form of nonlinear free energy…
The efficient simulation of the mean value of a non-linear functional of the solution to a linear stochastic partial differential equation (SPDE) with additive Gaussian noise is considered. A Galerkin finite element method is employed along…
We apply a new numerical method, the singular Fourier-Pad\'e (SFP) method invented by Driscoll and Fornberg (2001, 2011), to price European-type options in L\'evy and affine processes. The motivation behind this application is to reduce the…
Support vector machines (SVMs) are widely used and constitute one of the best examined and used machine learning models for two-class classification. Classification in SVM is based on a score procedure, yielding a deterministic…
This paper presents closed-form analytical formulas for pricing volatility and variance derivatives with nonlinear payoffs under discrete-time observations. The analysis is based on a probabilistic approach assuming that the underlying…
For Kolmogorov equations associated to finite dimensional stochastic differential equations (SDEs) in high dimension, a numerical method alternative to Monte Carlo simulations is proposed. The structure of the SDE is inspired by stochastic…
In this work, we propose an algorithm to price American options by directly solving the dual minimization problem introduced by Rogers. Our approach relies on approximating the set of uniformly square integrable martingales by a finite…
We consider a two-factor model for the valuation of a non callable defaultable bond which pays coupons at certain given dates. The model under consideration is the Jump to Default Constant Elasticity of Variance (JDCEV) model. The JDCEV…
We present a novel approach for parameter calibration of the Heston model for pricing an Asian put option, namely space mapping. Since few parameters of the Heston model can be directly extracted from real market data, calibration to real…
The accurate valuation of financial derivatives plays a pivotal role in the finance industry. Although closed formulas for pricing are available for certain models and option types, exemplified by the European Call and Put options in the…
Options on baskets (linear combinations) of assets are notoriously challenging to price using even the simplest log-normal continuous-time stochastic models for the individual assets. The paper [5] gives a closed form approximation formula…
In this paper we explore several approaches for sampling weight vectors in the context of weighted sum scalarisation approaches for solving multi-criteria decision making (MCDM) problems. This established method converts a multi-objective…
The paper is devoted to modeling optimal exercise strategies of the behavior of investors and issuers working with convertible bonds. This implies solution of the problems of stock price modeling, payoff computation and min-max…