Related papers: Incorporating Views on Market Dynamics in Options …
Extracting market expectations has always been an important issue when making national policies and investment decisions in financial markets. In option markets, the most popular way has been to extract implied volatilities to assess the…
In this article, we investigate the behavior of long-term options. In many cases, option prices follow an exponential decay (or growth) rate for further maturity dates. We determine under what conditions option prices are characterized by…
Recent years have seen an emerging class of structured financial products based on options linked to dynamic asset allocation strategies. One of the most chosen approach is the so-called target volatility mechanism. It shifts between risky…
We investigate the joint dynamics of spot and implied volatility from an empirical perspective. We focus on the equity market with the SPX Index our underlying of choice. Using only observable quantities, we extract the instantaneous…
We solve the superhedging problem for European options in an illiquid extension of the Black-Scholes model, in which transactions have transient price impact and the costs and the strategies for hedging are affected by physical or cash…
All the financial practitioners are working in incomplete markets full of unhedgeable risk-factors. Making the situation worse, they are only equipped with the imperfect information on the relevant processes. In addition to the market risk,…
This paper explores the effectiveness of high-frequency options trading strategies enhanced by advanced portfolio optimization techniques, investigating their ability to consistently generate positive returns compared to traditional long or…
This paper examines the volatility and covariance dynamics of cash and futures contracts that underlie the Optimal Hedge Ratio (OHR) across different hedging time horizons. We examine whether hedge ratios calculated over a short term…
The paper introduces a limit version of multiple stopping options such that the holder selects dynamically a weight function that control the distribution of the payments (benefits) over time. In applications for commodities and energy…
We present a dynamic hedging scheme for S&P 500 options, where rebalancing decisions are enhanced by integrating information about the implied volatility surface dynamics. The optimal hedging strategy is obtained through a deep policy…
We consider a non-stochastic online learning approach to price financial options by modeling the market dynamic as a repeated game between the nature (adversary) and the investor. We demonstrate that such framework yields analogous…
We propose a flexible framework for hedging a contingent claim by holding static positions in vanilla European calls, puts, bonds, and forwards. A model-free expression is derived for the optimal static hedging strategy that minimizes the…
The discrepancy between realized volatility and the market's view of volatility has been known to predict individual equity options at the monthly horizon. It is not clear how this predictability depends on a forecast's ability to predict…
This paper develops a model for option market making in which the hedging activity of the market maker generates price impact on the underlying asset. The option order flow is modeled by Cox processes, with intensities depending on the…
This study derives the expected liquidity cost when performing the delta hedging process of a European option. This cost is represented by an integration formula that includes European option prices and a certain function depending on the…
This paper studies equity basket options -- i.e., multi-dimensional derivatives whose payoffs depend on the value of a weighted sum of the underlying stocks -- and develops a new and innovative approach to ensure consistency between options…
This paper deals with the problem of discrete-time option pricing by the mixed fractional version of Merton model with transaction costs. By a mean-self-financing delta hedging argument in a discrete-time setting, a European call option…
In this work, we introduce a Monte Carlo method for the dynamic hedging of general European-type contingent claims in a multidimensional Brownian arbitrage-free market. Based on bounded variation martingale approximations for…
In this paper we solve the discrete time mean-variance hedging problem when asset returns follow a multivariate autoregressive hidden Markov model. Time dependent volatility and serial dependence are well established properties of financial…
In this paper the valuation problem of a European call option in presence of both stochastic volatility and transaction costs is considered. In the limit of small transaction costs and fast mean reversion, an asymptotic expression for the…