Related papers: FX Modelling in Collateralized Markets: foreign me…
Improved bounds on the copula of a bivariate random vector are computed when partial information is available, such as the values of the copula on a given subset of $[0,1]^2$, or the value of a functional of the copula, monotone with…
In this paper we present a new multi-asset pricing model, which is built upon newly developed families of solvable multi-parameter single-asset diffusions with a nonlinear smile-shaped volatility and an affine drift. Our multi-asset pricing…
We propose a model which can be jointly calibrated to the corporate bond term structure and equity option volatility surface of the same company. Our purpose is to obtain explicit bond and equity option pricing formulas that can be…
In this paper, we introduce a matrix-valued time series model for foreign exchange market. We then formulate trading matrices, foreign exchange options and return options (matrices), as well as on-line portfolio strategies. Moreover, we…
A three-dimensional extension of the structural default model with firms' values driven by correlated diffusion processes is presented. Green's function based semi-analytical methods for solving the forward calibration problem and backward…
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…
This paper examines a semi-analytical approach for pricing American options in time-inhomogeneous models characterized by negative interest rates (for equity/FX) or negative convenience yields (for commodities/cryptocurrencies). Under such…
The pricing and hedging of a general class of options (including American, Bermudan and European options) on multiple assets are studied in the context of currency markets where trading is subject to proportional transaction costs, and…
Haircutting non-cash collateral has become a key element of the post-crisis reform of the shadow banking system and OTC derivatives markets. This article develops a parametric haircut model by expanding haircut definitions beyond the…
The Foreign Exchange (Forex) is a large decentralized market, on which trading analysis and algorithmic trading are popular. Research efforts have been focusing on proof of efficiency of certain technical indicators. We demonstrate,…
We estimate prices of exotic options in a discrete-time model-free setting when the trader has access to market prices of a rich enough class of exotic and vanilla options. This is achieved by estimating an unobservable quantity called…
The linear Fisher market (LFM) is a basic equilibrium model from economics, which also has applications in fair and efficient resource allocation. First-price pacing equilibrium (FPPE) is a model capturing budget-management mechanisms in…
Gaussian copulas are widely used in the industry to correlate two random variables when there is no prior knowledge about the co-dependence between them. The perturbed Gaussian copula approach allows introducing the skew information of both…
In this paper, we establish a market model for the term structure of forward inflation rates based on the risk-neutral dynamics of nominal and real zero-coupon bonds. Under the market model, we can price inflation caplets as well as…
We discuss price variations distributions in foreign exchange markets, characterizing them both in calendar and business time frameworks. The price dynamics is found to be the result of two distinct processes, a multi-variance diffusion and…
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…
Given a finite set of European call option prices on a single underlying, we want to know when there is a market model which is consistent with these prices. In contrast to previous studies, we allow models where the underlying trades at a…
In this paper we extend the theory of option pricing to take into account and explain the empirical evidence for asset prices such as non-Gaussian returns, long-range dependence, volatility clustering, non-Gaussian copula dependence, as…
Valuation adjustments are nowadays a common practice to include credit and liquidity effects in option pricing. Funding costs arising from collateral procedures, hedging strategies and taxes are added to option prices to take into account…
We develop two alternate approaches to arbitrage-free, market-complete, option pricing. The first approach requires no riskless asset. We develop the general framework for this approach and illustrate it with two specific examples. The…