Related papers: On Trading American Put Options with Interactive V…
It is well-known that using delta hedging to hedge financial options is not feasible in practice. Traders often rely on discrete-time hedging strategies based on fixed trading times or fixed trading prices (i.e., trades only occur if the…
In this paper, we employ the Heston stochastic volatility model to describe the stock's volatility and apply the model to derive and analyze the optimal trading strategies for dealers in a security market. We also extend our study to option…
American options are financial instruments that can be exercised at any time before expiration. In this paper we study the problem of pricing this kind of derivatives within a framework in which some of the properties --volatility and…
We study a single risky financial asset model subject to price impact and transaction cost over an finite time horizon. An investor needs to execute a long position in the asset affecting the price of the asset and possibly incurring in…
Model risk arises from the misspecification of probabilistic models used for pricing and hedging derivatives. While model risk for European-style claims has been widely studied, much less attention has been given to American-style…
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…
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…
We study the valuation of an American put option with a random time horizon given by the last exit time of the underlying asset from a fixed level. Since this random time is not a stopping time, the problem falls outside the classical…
The aim of this study was to develop methods for evaluating the American-style option prices when the volatility of the underlying asset is described by a stochastic process. As part of this problem were developed techniques for modeling…
We propose a pairs trading model that incorporates a time-varying volatility of the Constant Elasticity of Variance type. Our approach is based on stochastic control techniques; given a fixed time horizon and a portfolio of two…
This paper is concerned with the solution of the optimal stopping problem associated to the valuation of Perpetual American options driven by continuous time Markov chains. We introduce a new dynamic approach for the numerical pricing of…
American options in a multi-asset market model with proportional transaction costs are studied in the case when the holder of an option is able to exercise it gradually at a so-called mixed (randomised) stopping time. The introduction of…
Mathematically, the execution of an American-style financial derivative is commonly reduced to solving an optimal stopping problem. Breaking the general assumption that the knowledge of the holder is restricted to the price history of the…
This paper investigates problems associated with the valuation of callable American volatility put options. Our approach involves modeling volatility dynamics as a mean-reverting 3/2 volatility process. We first propose a pricing formula…
We study the regularity of the stochastic representation of the solution of a class of initial-boundary value problems related to a regime-switching diffusion. This representation is related to the value function of a finite-horizon optimal…
Perpetual American options are financial instruments that can be readily exercised and do not mature. In this paper we study in detail the problem of pricing this kind of derivatives, for the most popular flavour, within a framework in…
We use probabilistic methods to characterise time dependent optimal stopping boundaries in a problem of multiple optimal stopping on a finite time horizon. Motivated by financial applications we consider a payoff of immediate stopping of…
We study a market model in which the volatility of the stock may jump at a random time from a fixed value to another fixed value. This model was already described in the literature. We present a new approach to the problem, based on partial…
Mounting empirical evidence suggests that the observed extreme prices within a trading period can provide valuable information about the volatility of the process within that period. In this paper we define a class of stochastic volatility…
We assume that an individual invests in a financial market with one riskless and one risky asset, with the latter's price following a diffusion with stochastic volatility. In the current financial market especially, it is important to…