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The problems of model and variable selections for classification trees are jointly considered. A penalized criterion is proposed which explicitly takes into account the number of variables, and a risk bound inequality is provided for the…
In this paper, we derive the price of a European call option of an asset following a normal process assuming stochastic volatility. The volatility is assumed to follow the Cox Ingersoll Ross (CIR) process. We then use the fast Fourier…
In this paper we study the pricing of exchange options under a dynamic described by stochastic correlation with random jumps. In particular, we consider a Ornstein-Uhlenbeck covariance model with Levy Background Noise Process driven by…
Most decision tree induction algorithms are based on a greedy top-down recursive partitioning strategy for tree growth. In this paper, we propose several methods for induction of decision trees and their ensembles based on evolutionary…
Exponential L\'evy processes have been used for modelling financial derivatives because of their ability to exhibit many empirical features of markets. Using their multidimensional analogue, a general analytic pricing formula is obtained,…
Simultaneous ascending auctions present agents with the exposure problem: bidding to acquire a bundle risks the possibility of obtaining an undesired subset of the goods. Auction theory provides little guidance for dealing with this…
In the paper, we propose a new calculation scheme for American options in the framework of a forward backward stochastic differential equation (FBSDE). The well-known decomposition of an American option price with that of a European option…
Tree-based ensemble methods, as Random Forests and Gradient Boosted Trees, have been successfully used for regression in many applications and research studies. Furthermore, these methods have been extended in order to deal with uncertainty…
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 article, we combine replication pricing with expectation pricing for derivative trades that are partially collateralized by cash. The derivatives are replicated by underlying assets and cash, using repurchasing agreement (repo) and…
We consider a method of lines (MOL) approach to determine prices of European and American exchange options when underlying asset prices are modelled with stochastic volatility and jump-diffusion dynamics. As the MOL, as with any other…
In this paper we present a theoretical framework for determining dynamic ask and bid prices of derivatives using the theory of dynamic coherent acceptability indices in discrete time. We prove a version of the First Fundamental Theorem of…
It is essential to incorporate the impact of investor behavior when modeling the dynamics of asset returns. In this paper, we reconcile behavioral finance and rational finance by incorporating investor behavior within the framework of…
This work addresses an enumeration problem on weighted bi-colored plane trees with prescribed vertex data, with all vertices labeled distinctly. We give a bijection proof of the enumeration formula originally due to Kochetkov, hence…
We investigate the pricing of cliquet options in a geometric Meixner model. The considered option is of monthly sum cap style while the underlying stock price model is driven by a pure-jump Meixner--L\'{e}vy process yielding Meixner…
We prove that the perpetual American put option price of level dependent volatility model with compound Poisson jumps is convex and is the classical solution of its associated quasi-variational inequality, that it is $C^2$ except at the…
Variable selection is an important statistical problem. This problem becomes more challenging when the candidate predictors are of mixed type (e.g. continuous and binary) and impact the response variable in nonlinear and/or non-additive…
In several applications of automatic diagnosis and active learning a central problem is the evaluation of a discrete function by adaptively querying the values of its variables until the values read uniquely determine the value of the…
Theoretical models applied to option pricing should take into account the empirical characteristics of the underlying financial time series. In this paper, we show how to price basket options when assets follow a shifted log-normal process…
Total value adjustment (XVA) is the change in value to be added to the price of a derivative to account for the bilateral default risk and the funding costs. In this paper, we compute such a premium for American basket derivatives whose…