Related papers: Rationality parameter for exercising American put
Our goal is to develop a partial ordering method for comparing stochastic choice functions on the basis of their individual rationality. To this end, we assign to any stochastic choice function a one-parameter class of deterministic choice…
We investigate qualitative and quantitative behavior of a solution of the mathematical model for pricing American style of perpetual put options. We assume the option price is a solution to the stationary generalized Black-Scholes equation…
The vast majority of works on option pricing operate on the assumption of risk neutral valuation, and consequently focus on the expected value of option returns, and do not consider risk parameters, such as variance. We show that it is…
An efficient computational algorithm to price financial derivatives is presented. It is based on a path integral formulation of the pricing problem. It is shown how the path integral approach can be worked out in order to obtain fast and…
We propose the deep parametric PDE method to solve high-dimensional parametric partial differential equations. A single neural network approximates the solution of a whole family of PDEs after being trained without the need of sample…
This paper presents a derivation of the explicit price for the perpetual American put option in the Black-Scholes model, time-capped by the first drawdown epoch beyond a predefined level. We demonstrate that the optimal exercise strategy…
American put options are among the most frequently traded single stock options, and their calibration is computationally challenging since no closed-form expression is available. Due to the higher flexibility in comparison to European…
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…
In this paper, we address one of the main puzzles in finance observed in the stock market by proponents of behavioral finance: the stock predictability puzzle. We offer a statistical model within the context of rational finance which can be…
The present article provides an efficient and accurate hybrid method to price American standard options in certain jump-diffusion models as well as American barrier-type options under the Black & Scholes framework. Our method generalizes…
Appropriate selection of the penalty parameter is crucial to obtaining good performance from the Alternating Direction Method of Multipliers (ADMM). While analytic results for optimal selection of this parameter are very limited, there is a…
A new mathematical model for the Black-Scholes equation is proposed to forecast option prices. This model includes new interval for the price of the underlying stock as well as new initial and boundary conditions. Conventional notions of…
Comparative Judgement is an assessment method where item ratings are estimated based on rankings of subsets of the items. These rankings are typically pairwise, with ratings taken to be the estimated parameters from fitting a Bradley-Terry…
American options are studied in a general discrete market in the presence of proportional transaction costs, modelled as bid-ask spreads. Pricing algorithms and constructions of hedging strategies, stopping times and martingale…
All possible types of deterministic choice behavior are classified by their degree of irrationality. This classification is performed in three steps: (1) select a benchmark of rationality, for which this degree is zero; (2) endow the set of…
We analyze and calculate the early exercise boundary for a class of stationary generalized Black-Scholes equations in which the volatility function depends on the second derivative of the option price itself. A motivation for studying the…
We propose a deep learning algorithm for high dimensional optimal stopping problems. Our method is inspired by the penalty method for solving free boundary PDEs. Within our approach, the penalized PDE is approximated using the Deep BSDE…
In this paper we investigate a nonlinear generalization of the Black-Scholes equation for pricing American style call options in which the volatility term may depend on the underlying asset price and the Gamma of the option. We propose a…
This paper investigates analytic properties of American option prices under the finite moment log-stable (FMLS) model. Under this model the price of American options is characterised by the free boundary problem of a fractional partial…
Finite difference approximations to multi-asset American put option price are considered. The assets are modelled as a multi-dimensional diffusion process with variable drift and volatility. Approximation error of order one quarter with…