Related papers: Random Time Forward Starting Options
Typically options with a path dependent payoff, such as Target Accumulation Redemption Note (TARN), are evaluated by a Monte Carlo method. This paper describes a finite difference scheme for pricing a TARN option. Key steps in the proposed…
Motivated by the industry practice of pairs trading, we study the optimal timing strategies for trading a mean-reverting price spread. An optimal double stopping problem is formulated to analyze the timing to start and subsequently…
Reliability Options are capacity remuneration mechanisms aimed at enhancing security of supply in electricity systems. They can be framed as call options on electricity sold by power producers to System Operators. This paper provides a…
In this paper a simple model for the evolution of the forward density of the future value of an asset is proposed. The model allows for a straightforward initial calibration to option prices and has dynamics that are consistent with…
We consider a financial market in discrete time and study pricing and hedging conditional on the information available up to an arbitrary point in time. In this conditional framework, we determine the structure of arbitrage-free prices.…
In this paper, we address one of the main puzzles in finance observed in the stock market by proponents of behavioral finance: the stock predictability puzzle. We offer a statistical model within the context of rational finance which can be…
Traders and investors involved in an option contract having the underlying stock in range bound are likely to lose their initial investment. Timing in buying an option contract is of capital importance. In a recent article [1] the…
In this note we discuss - in what is intended to be a pedagogical fashion - FX option pricing in target zones with attainable boundaries. The boundaries must be reflecting. The no-arbitrage requirement implies that the differential (foreign…
In this paper, we explore an optimal timing strategy for the trading of price spreads exhibiting mean-reverting characteristics. A sequential optimal stopping framework is formulated to analyze the optimal timings for both entering and…
Continuous time random walks (CTRWs) are used in physics to model anomalous diffusion, by incorporating a random waiting time between particle jumps. In finance, the particle jumps are log-returns and the waiting times measure delay between…
Randomised signature has been proposed as a flexible and easily implementable alternative to the well-established path signature. In this article, we employ randomised signature to introduce a generative model for financial time series data…
We derive a forward equation for arbitrage-free barrier option prices, in terms of Markovian projections of the stochastic volatility process, in continuous semi-martingale models. This provides a Dupire-type formula for the coefficient…
In this paper, we describe a general method for constructing the posterior distribution of an option price. Our framework takes as inputs the prior distributions of the parameters of the stochastic process followed by the underlying, as…
Mathematical theory of selection systems is developed for a wide class of dynamical models of inhomogeneous populations with discrete time. The Price equation and its particular case, the Fisher Fundamental theorem of natural selection…
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…
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…
Recent empirical studies suggest that the volatilities associated with financial time series exhibit short-range correlations. This entails that the volatility process is very rough and its autocorrelation exhibits sharp decay at the…
A Levy-driven Ornstein-Uhlenbeck process is proposed to model the evolution of the risk-free rate and default intensities for the purpose of evaluating option contracts on a credit index. Time evolution in credit markets is assumed to…
We propose a unified framework for equity and credit risk modeling, where the default time is a doubly stochastic random time with intensity driven by an underlying affine factor process. This approach allows for flexible interactions…
There are two major ways of selling impressions in display advertising. They are either sold in spot through auction mechanisms or in advance via guaranteed contracts. The former has achieved a significant automation via real-time bidding…