Related papers: Pricing complexity options
Numerous definitions for complexity have been proposed over the last half century, with little consensus achieved on how to use the term. A definition of complexity is supplied here that is closely related to the Kolmogorov Complexity and…
In this paper we present a very simple way to price a class of barrier options when the underlying process is driven by a huge class of L\'evy processes. To achieve our goal we assume that our market satisfies a symmetry property. In case…
In this paper we present an algorithm for pricing barrier options in one-dimensional Markov models. The approach rests on the construction of an approximating continuous-time Markov chain that closely follows the dynamics of the given…
There is a growing body of work on sorting and selection in models other than the unit-cost comparison model. This work is the first treatment of a natural stochastic variant of the problem where the cost of comparing two elements is a…
We review possible measures of complexity which might in particular be applicable to situations where the complexity seems to arise spontaneously. We point out that not all of them correspond to the intuitive (or "naive") notion, and that…
We study the valuation and hedging problem of European options in a market subject to liquidity shocks. Working within a Markovian regime-switching setting, we model illiquidity as the inability to trade. To isolate the impact of such…
Kolmogorov (1965) defined the complexity of a string $x$ as the minimal length of a program generating $x$. Obviously this definition depends on the choice of the programming language. Kolmogorov noted that there exist \emph{optimal}…
Since the introduction of the Kolmogorov complexity of binary sequences in the 1960s, there have been significant advancements in the topic of complexity measures for randomness assessment, which are of fundamental importance in theoretical…
This paper studies how to price and hedge options under stock models given as a path-dependent SDE solution. When the path-dependent SDE coefficients have Fr\'{e}chet derivatives, an option price is differentiable with respect to time and…
An investor with constant absolute risk aversion trades a risky asset with general It\^o-dynamics, in the presence of small proportional transaction costs. In this setting, we formally derive a leading-order optimal trading policy and the…
Li, Chen, Li, Ma, and Vit\'anyi (2004) introduced a similarity metric based on Kolmogorov complexity. It followed work by Shannon in the 1950s on a metric based on entropy. We define two computable similarity metrics, analogous to the…
We study the upper and lower bounds for prices of European and American style options with the possibility of an external termination, meaning that the contract may be terminated at some random time. Under the assumption that the underlying…
We introduce a new method to price American-style options on underlying investments governed by stochastic volatility (SV) models. The method does not require the volatility process to be observed. Instead, it exploits the fact that the…
In some options markets (e.g. commodities), options are listed with only a single maturity for each underlying. In others, (e.g. equities, currencies), options are listed with multiple maturities. In this paper, we provide an algorithm for…
A master equation approach to the numerical solution of option pricing models is developed. The basic idea of the approach is to consider the Black--Scholes equation as the macroscopic equation of an underlying mesoscopic stochastic option…
The Kolmogorov complexity of a string is the length of its shortest description. We define a second quantised Kolmogorov complexity where the length of a description is defined to be the average length of its superposition. We discuss this…
This paper presents a multinomial method for option pricing when the underlying asset follows an exponential Variance Gamma process. The continuous time Variance Gamma process is approximated by a discrete time Markov chain with the same…
We characterize the price of a European option on several assets for a very risk averse seller, in a market with small transaction costs as a solution of a nonlinear diffusion equation. This problem turns out to be one of asymptotic…
We develop theory concerning non-uniform complexity in a setting in which the notion of single-pass instruction sequence considered in program algebra is the central notion. We define counterparts of the complexity classes P/poly and…
We construct a sequence of functions that uniformly converge (on compact sets) to the price of Asian option, which is written on a stock whose dynamics follows a jump diffusion, exponentially fast. Each of the element in this sequence…