Related papers: Indifference Pricing and Hedging in a Multiple-Pri…
This paper studies the problem of maximizing the expected utility of terminal wealth for a financial agent with an unbounded random endowment, and with a utility function which supports both positive and negative wealth. We prove the…
This paper presents a stochastic model for discrete-time trading in financial markets where trading costs are given by convex cost functions and portfolios are constrained by convex sets. The model does not assume the existence of a cash…
We consider derivatives written on multiple underlyings in a one-period financial market, and we are interested in the computation of model-free upper and lower bounds for their arbitrage-free prices. We work in a completely realistic…
Financial derivatives pricing aims to find the fair value of a financial contract on an underlying asset. Here we consider option pricing in the partial differential equations framework. The contemporary models lead to one-dimensional or…
We study the two-times differentiability of the value functions of the primal and dual optimization problems that appear in the setting of expected utility maximization in incomplete markets. We also study the differentiability of the…
In common finance literature, Black-Scholes partial differential equation of option pricing is usually derived with no-arbitrage principle. Considering an asset market, Merton applied the Hamilton-Jacobi-Bellman techniques of his…
We propose a class of discrete-time stochastic models for the pricing of inflation-linked assets. The paper begins with an axiomatic scheme for asset pricing and interest rate theory in a discrete-time setting. The first axiom introduces a…
This paper introduces an information-based model for the pricing of storable commodities such as crude oil and natural gas. The model uses the concept of market information about future supply and demand as a basis for valuation. Physical…
We study the dynamic indifference pricing with ambiguity preferences. For this, we introduce the dynamic expected utility with ambiguity via the nonlinear expectation--G-expectation, introduced by Peng (2007). We also study the risk…
The Black-Scholes model (sometimes known as the Black-Scholes-Merton model) gives a theoretical estimate for the price of European options. The price evolution under this model is described by the Black-Scholes formula, one of the most…
We consider arbitrage free valuation of European options in Black-Scholes and Merton markets, where the general structure of the market is known, however the specific parameters are not known. In order to reflect this subjective uncertainty…
We propose a method for extending a given asset pricing formula to account for two additional sources of risk: the risk associated with future changes in market--calibrated parameters and the remaining risk associated with idiosyncratic…
The aim of this paper is to present a simple stochastic model that accounts for the effects of a long-memory in volatility on option pricing. The starting point is the stochastic Black-Scholes equation involving volatility with long-range…
We use a continuous version of the standard deviation premium principle for pricing in incomplete equity markets by assuming that the investor issuing an unhedgeable derivative security requires compensation for this risk in the form of a…
In a seminal paper in 1973, Black and Scholes argued how expected distributions of stock prices can be used to price options. Their model assumed a directed random motion for the returns and consequently a lognormal distribution of asset…
The objective of this paper is to introduce the theory of option pricing for markets with informed traders within the framework of dynamic asset pricing theory. We introduce new models for option pricing for informed traders in complete…
The studied model was suggested to design a perfect hedging strategy for a large trader. In this case the implementation of a hedging strategy affects the price of the underlying security. The feedback-effect leads to a nonlinear version of…
We show how inter-asset dependence information derived from market prices of options can lead to improved model-free price bounds for multi-asset derivatives. Depending on the type of the traded option, we either extract correlation…
This paper presents the Runge-Kutta-Legendre finite difference scheme, allowing for an additional shift in its polynomial representation. A short presentation of the stability region, comparatively to the Runge-Kutta-Chebyshev scheme…
We study the utility indifference price of a European option in the context of small transaction costs. Considering the general setup allowing consumption and a general utility function at final time T, we obtain an asymptotic expansion of…