Related papers: Matching distributions: Asset pricing with density…
We present an adaptive approach for valuing the European call option on assets with stochastic volatility. The essential feature of the method is a reduction of uncertainty in latent volatility due to a Bayesian learning procedure. Starting…
We propose a model for price formation in financial markets based on clearing of a standard call auction with random orders, and verify its validity for prediction of the daily closing price distribution statistically. The model considers…
Contrary to the common view that exact pricing is prohibitive owing to the curse of dimensionality, this study proposes an efficient and unified method for pricing options under multivariate Black-Scholes-Merton (BSM) models, such as the…
We study markets with no riskless (safe) asset. We derive the corresponding Black-Scholes-Merton option pricing equations for markets where there are only risky assets which have the following price dynamics: (i) continuous diffusions; (ii)…
Curve fitting is a fundamental technique in engineering and scientific research, serving as a critical tool for extracting insights from data. This study explores the application of various statistical equations to estimate outcomes in…
Rough volatility models are known to reproduce the behavior of historical volatility data while at the same time fitting the volatility surface remarkably well, with very few parameters. However, managing the risks of derivatives under…
Tempered stable distributions are frequently used in financial applications (e.g., for option pricing) in which the tails of stable distributions would be too heavy. Given the non-explicit form of the probability density function,…
In this paper, we develop a 4/2 stochastic volatility plus jumps model, namely, a new stochastic volatility model including the Heston model and 3/2 model as special cases. Our model is highly tractable by applying the Lie symmetries theory…
In the framework of Black-Scholes-Merton model of financial derivatives, a path integral approach to option pricing is presented. A general formula to price European path dependent options on multidimensional assets is obtained and…
We introduce several new estimation methods that leverage shape constraints in auction models to estimate various objects of interest, including the distribution of a bidder's valuations, the bidder's ex ante expected surplus, and the…
In this work, we consider the hedging error due to discrete trading in models with jumps. Extending an approach developed by Fukasawa [In Stochastic Analysis with Financial Applications (2011) 331-346 Birkh\"{a}user/Springer Basel AG] for…
We consider a stochastic volatility model with jumps where the underlying asset price is driven by the process sum of a 2-dimensional Brownian motion and a 2-dimensional compensated Poisson process. The market is incomplete, resulting in…
This paper investigates the pricing of financial derivatives and the calculation of their delta Greek when the underlying asset is a jump-diffusion process in which the stochastic intensity component follows the CIR process. Utilizing…
We consider a mean-variance portfolio selection problem in a financial market with contagion risk. The risky assets follow a jump-diffusion model, in which jumps are driven by a multivariate Hawkes process with mutual-excitation effect. The…
We propose a new set of stylized facts quantifying the structure of financial markets. The key idea is to study the combined structure of both investment strategies and prices in order to open a qualitatively new level of understanding of…
Option pricing is an integral part of modern financial risk management. The well-known Black and Scholes (1973) formula is commonly used for this purpose. This paper is an attempt to extend their work to a situation in which the…
We consider an investor who seeks to maximize her expected utility derived from her terminal wealth relative to the maximum performance achieved over a fixed time horizon, and under a portfolio drawdown constraint, in a market with local…
We present a unified, market-complete model that integrates both the Bachelier and Black-Scholes-Merton frameworks for asset pricing. The model allows for the study, within a unified framework, of asset pricing in a natural world that…
We study a discrete-time consumption-based capital asset pricing model under expectations-based reference-dependent preferences. More precisely, we consider an endowment economy populated by a representative agent who derives utility from…
An agent-based modelling methodology for the joint price evolution of two stocks is put forward. The method models future multidimensional price trajectories reflecting how a class of agents rebalance their portfolios in an operational way…