Related papers: Simulation of Implied Volatility Surfaces via Tang…
We consider stochastic volatility models under parameter uncertainty and investigate how model derived prices of European options are affected. We let the pricing parameters evolve dynamically in time within a specified region, and…
Derivatives on the Chicago Board Options Exchange volatility index (VIX) have gained significant popularity over the last decade. The pricing of VIX derivatives involves evaluating the square root of the expected realised variance which…
We apply path integration techniques to obtain option pricing with stochastic volatility using a generalized Black-Scholes equation known as the Merton and Garman equation. We numerically simulate the option prices using the technique of…
We investigate whether it is possible to formulate option pricing and hedging models without using probability. We present a model that is consistent with two notions of volatility: a historical volatility consistent with statistical…
During the last decade Levy processes with jumps have received increasing popularity for modelling market behaviour for both derviative pricing and risk management purposes. Chan et al. (2009) introduced the use of empirical likelihood…
We propose an alternative approach towards cost mitigation in volatility-managed portfolios based on smoothing the predictive density of an otherwise standard stochastic volatility model. Specifically, we develop a novel variational Bayes…
In this paper we develop models of asset return mean and covariance that depend on some observable market conditions, and use these to construct a trading policy that depends on these conditions, and the current portfolio holdings. After…
We explore credit risk pricing by modeling equity as a call option and debt as the difference between the firm's asset value and a put option, following the structural framework of the Merton model. Our approach proceeds in two stages:…
Entropy based ideas find wide-ranging applications in finance for calibrating models of portfolio risk as well as options pricing. The abstracted problem, extensively studied in the literature, corresponds to finding a probability measure…
We propose a fully data-driven approach to calibrate local stochastic volatility (LSV) models, circumventing in particular the ad hoc interpolation of the volatility surface. To achieve this, we parametrize the leverage function by a family…
We construct a statistical indicator for the detection of short-term asset price bubbles based on the information content of bid and ask market quotes for plain vanilla put and call options. Our construction makes use of the martingale…
We use the martingale method to discuss the relationship between mean-variance (MV) and monotone mean-variance (MMV) portfolio selections. We propose a unified framework to discuss the relationship in general financial markets without any…
We explore the abilities of two machine learning approaches for no-arbitrage interpolation of European vanilla option prices, which jointly yield the corresponding local volatility surface: a finite dimensional Gaussian process (GP)…
This paper discusses the efficient Bayesian estimation of a multivariate factor stochastic volatility (Factor MSV) model with leverage. We propose a novel approach to construct the sampling schemes that converges to the posterior…
This research investigates liquidity dynamics in fractional ownership markets, focusing on illiquid alternative investments traded on a FinTech platform. By leveraging empirical data and employing agent-based modeling (ABM), the study…
Despite the increasing availability of high-performance computational resources, Reynolds-Averaged Navier-Stokes (RANS) simulations remain the workhorse for the analysis of turbulent flows in real-world applications. Linear eddy viscosity…
This paper presents an algorithm for reliability-based topology optimization of linear elastic continua under random-field material model. The modelling random field is discretized into a small number of random variables, and then the…
We develop a general method for derivative pricing. This approach has its roots in Shannon's Information Theory. The notion of $\lambda$-analyticity of L\'{e}vy models is introduced on the basis of which new representations of the pricing…
Implied volatilities form a well-known structure of smile or surface which accommodates the Bachelier model and observed market prices of interest rate options. For the swaptions that we study, three parameters are taken into account for…
In this paper, we analyse the South African implied volatility in various setting. We assess the information content in SAVI implied volatility using daily markets data. Our empirical application is focused on the FTSE/JSE Top 40 index and…