Related papers: A hybrid tree/finite-difference approach for Hesto…

We examine the empirical performance of some parametric and nonparametric estimators of prices of options with a fixed time to maturity, focusing on variance-gamma and Heston models on one side, and on expansions in Hermite functions on the…

Tree-structured models are a powerful alternative to parametric regression models if non-linear effects and interactions are present in the data. Yet, classical tree-structured models might not be appropriate if data comes in clusters of…

We propose a quasi-Monte Carlo algorithm for pricing knock-out and knock-in barrier options under the Heston (1993) stochastic volatility model. This is done by modifying the LT method from Imai and Tan (2006) for the Heston model such that…

We introduce meshfree finite difference methods for approximating nonlinear elliptic operators that depend on second directional derivatives or the eigenvalues of the Hessian. Approximations are defined on unstructured point clouds, which…

In this paper, we consider the Heston-CIR model with L\'{e}vy process for pricing in the foreign exchange (FX) market by providing a new formula that better fits the distribution of prices. To do that, first, we study the existence and…

In this paper, we consider the numerical pricing of financial derivatives using Radial Basis Function generated Finite Differences in space. Such discretization methods have the advantage of not requiring Cartesian grids. Instead, the nodes…

This paper extends the valuation and optimal surrender framework for variable annuities with guaranteed minimum benefits in a L\'evy equity market environment by incorporating a stochastic interest rate described by the Hull-White model.…

We show how the prices of options can be determined with the help of double-fractional differential equation in such a way that their inclusion in a portfolio of stocks provides a more reliable hedge against dramatic price drops that the…

We discuss a semi-analytical method for solving SABR-type equations based on path integrals. In this approach, one set of variables is integrated analytically while the second set is integrated numerically via Monte-Carlo. This method,…

Combining human and artificial intelligence (AI) is a potentially powerful approach to boost decision accuracy. However, few such approaches exist that effectively integrate both types of intelligence while maintaining human agency. Here,…

We present a path integral method to derive closed-form solutions for option prices in a stochastic volatility model. The method is explained in detail for the pricing of a plain vanilla option. The flexibility of our approach is…

We consider option pricing using replicating binomial trees, with a two fold purpose. The first is to introduce ESG valuation into option pricing. We explore this in a number of scenarios, including enhancement of yield due to trader…

The pricing of options, warrants and other derivative securities is one of the great success of financial economics. These financial products can be modeled and simulated using quantum mechanical instruments based on a Hamiltonian…

We develop a model for indifference pricing in derivatives markets where price quotes have bid-ask spreads and finite quantities. The model quantifies the dependence of the prices and hedging portfolios on an investor's beliefs, risk…

In this paper, we combine modern portfolio theory and option pricing theory so that a trader who takes a position in a European option contract and the underlying assets can construct an optimal portfolio such that at the moment of the…

We investigate the relation between the fair price for European-style vanilla options and the distribution of short-term returns on the underlying asset ignoring transaction and other costs. We compute the risk-neutral probability density…

We consider a novel use case for the Double Heston model (Christoffersen et al,, 2009), where the two Heston sub-variances have different spot/volatility correlations but the same volatility of volatility and mean reversion speed. This…

For valuing European options, a straightforward model is the well-known Black-Scholes formula. Contrary to market reality, this model assumed that interest rate and volatility are constant. To modify the Black-Scholes model, Heston and…

We present a new high-order compact scheme for the multi-dimensional Black-Scholes model with application to European Put options on a basket of two underlying assets. The scheme is second-order accurate in time and fourth-order accurate in…

An algorithm for separating the high- and low-frequency molecular dynamics modes in Hybrid Monte Carlo simulations of gauge theories with dynamical fermions is presented. The separation is based on splitting the pseudo-fermion action into…