Related papers: Rationality parameter for exercising American put
We study a regularized variant of the Bayesian Persuasion problem, where the receiver's decision process includes a divergence-based penalty that accounts for deviations from perfect rationality. This modification smooths the underlying…
The pricing and hedging of a general class of options (including American, Bermudan and European options) on multiple assets are studied in the context of currency markets where trading is subject to proportional transaction costs, and…
The issue of developing simple Black-Scholes type approximations for pricing European options with large discrete dividends was popular since early 2000's with a few different approaches reported during the last 10 years. Moreover, it has…
Regularization methods allow one to handle a variety of inferential problems where there are more covariates than cases. This allows one to consider a potentially enormous number of covariates for a problem. We exploit the power of these…
Characterization of the American put option price is still an open issue. From the beginning of the nineties there exists a non-closed formula for this price but nontrivial numerical computations are required to solve it. Strong efforts…
We introduce a simple stochastic volatility model, whose novelty consists in taking into account hitting times of the asset price, and study the optimal stopping problem corresponding to a put option whose time horizon (after the asset…
An analytic method for pricing American call options is provided; followed by an empirical method for pricing Asian call options. The methodology is the pricing theory presented in "A Modern Theory of Random Variation", by Patrick…
We consider a discrete-time, generically incomplete market model and a behavioural investor with power-like utility and distortion functions. The existence of optimal strategies in this setting has been shown in a previous paper under…
The problem of determining the European-style option price in the incomplete market has been examined within the framework of stochastic optimization. An analytic method based on the discrete dynamic programming equation (Bellman equation)…
The purpose of this paper is to analyze and compute the early exercise boundary for a class of nonlinear Black--Scholes equations with a nonlinear volatility which can be a function of the second derivative of the option price itself. A…
This paper presents a derivation of the explicit price for the perpetual American put option time-capped by the first drawdown epoch beyond a predefined level. We consider the market in which an asset price is described by geometric L\'evy…
Tuning parameters are parameters involved in an estimating procedure for the purpose of reducing the risk of some other estimator. Examples include the degree of penalization in penalized regression and likelihood problems, as well as the…
In this paper new analytical and numerical approaches to valuating path-dependent options of European type have been developed. The model of stochastic volatility as a basic model has been chosen. For European options we could improve the…
We derive the Black-Scholes-Merton dual equation, which has exactly the same form as the Black-Scholes-Merton equation. The novel and general equation works for options with a payoff of homogeneous of degree one, including European,…
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.…
The Black-Scholes option pricing model remains a cornerstone in financial mathematics, yet its application is often challenged by the need for accurate hedging strategies, especially in dynamic market environments. This paper presents a…
This paper starts by defining the criteria where the early-exercise of an American option is never optimal, under positive, or negative rates. It follows with a short analysis of the various shapes of the exercise region under negative…
In this paper we study a parabolic version of the fractional obstacle problem, proving almost optimal regularity for the solution. This problem is motivated by an American option model proposed by Menton which introduces, into the theory of…
In the ultimatum game, the challenge is to explain why responders reject non-zero offers thereby defying classical rationality. Fairness and related notions have been the main explanations so far. We explain this rejection behavior via the…
Nitsche's method is a popular approach to implement Dirichlet-type boundary conditions in situations where a strong imposition is either inconvenient or simply not feasible. The method is widely applied in the context of unfitted finite…