Related papers: Option Pricing in a Dynamic Variance-Gamma Model
We discuss the probabilistic properties of the variation based third and fourth moments of financial returns as estimators of the actual moments of the return distributions. The moment variations are defined under non-parametric assumptions…
The correlated stochastic volatility models constitute a natural extension of the Black and Scholes-Merton framework: here the volatility is not a constant, but a stochastic process correlated with the price log-return one. At present,…
A stochastic model for pure-jump diffusion (the compound renewal process) can be used as a zero-order approximation and as a phenomenological description of tick-by-tick price fluctuations. This leads to an exact and explicit general…
Based on empirical market data, a stochastic volatility model is proposed with volatility driven by fractional noise. The model is used to obtain a risk-neutrality option pricing formula and an option pricing equation.
We develop a novel observation-driven model for high-frequency prices. We account for irregularly spaced observations, simultaneous transactions, discreteness of prices, and market microstructure noise. The relation between trade durations…
We present an approximation method based on the mixing formula (Hull & White 1987, Romano & Touzi 1997) for pricing European options in Barndorff-Nielsen and Shephard models. This approximation is based on a Taylor expansion of the option…
We give an analytical characterization of the price function of an American option in Heston-type models. Our approach is based on variational inequalities and extends recent results of Daskalopoulos and Feehan (2011). We study the…
Stochastic volatility models have existed in Option pricing theory ever since the crash of 1987 which violated the Black-Scholes model assumption of constant volatility. Heston model is one such stochastic volatility model that is widely…
In this paper, we consider option pricing in a framework of the fractional Heston-type model with $H>1/2$. As it is impossible to obtain an explicit formula for the expectation $\mathbb E f(S_T)$ in this case, where $S_T$ is the asset price…
Generalized autoregressive conditional heteroscedasticity (GARCH) models have long been considered as one of the most successful families of approaches for volatility modeling in financial return series. In this paper, we propose an…
We propose a new high-order alternating direction implicit (ADI) finite difference scheme for the solution of initial-boundary value problems of convection-diffusion type with mixed derivatives and non-constant coefficients, as they arise…
This study presents contemporaneous modeling of asset return and price range within the framework of stochastic volatility with leverage. A new representation of the probability density function for the price range is provided, and its…
We investigate the problem of pricing derivatives under a fractional stochastic volatility model. We obtain an approximate expression of the derivative price where the stochastic volatility can be composed of deterministic functions of time…
In this article we focus on the pricing of exchange options when the dynamic of logprices follows either the well-known variance gamma or the recent variance gamma++ process introduced in Gardini et al [19]. In particular, for the former…
In this paper, we introduce and analyze the fractional Barndorff-Nielsen and Shephard (BN-S) stochastic volatility model. The proposed model is based upon two desirable properties of the long-term variance process suggested by the empirical…
We present a generative framework for pricing European-style basket options by learning the conditional terminal distribution of the log arithmetic-weighted basket return. A Mixture Density Network (MDN) maps time-varying market inputs…
We study the problem of finding probability densities that match given European call option prices. To allow prior information about such a density to be taken into account, we generalise the algorithm presented in Neri and Schneider (2011)…
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…
We find the variance-optimal equivalent martingale measure when multivariate assets are modeled by a regime-switching geometric Brownian motion, and the regimes are represented by a homogeneous continuous time Markov chain. Under this new…
Based on criteria of mathematical simplicity and consistency with empirical market data, a stochastic volatility model is constructed, the volatility process being driven by fractional noise. Price return statistics and asymptotic behavior…