Related papers: FX Modelling in Collateralized Markets: foreign me…
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…
The pricing of currency options is largely dependent on the dynamic relationship between a pair of currencies. Typically, the pricing of options with payoffs dependent on multi-assets becomes tricky for reasons such as the non-Gaussian…
We consider a general local-stochastic volatility model and an investor with exponential utility. For a European-style contingent claim, whose payoff may depend on either a traded or non-traded asset, we derive an explicit approximation for…
Based on the analog between the stochastic dynamics and quantum harmonic oscillator, we propose a market force driving model to generalize the Black-Scholes model in finance market. We give new schemes of option pricing, in which we can…
Over-the-counter derivatives have contributed significantly to the effectiveness and efficiency of the international financial system but also entail significant counterparty credit risk. Collateralization is one of the most important and…
The classical linear Black--Scholes model for pricing derivative securities is a popular model in financial industry. It relies on several restrictive assumptions such as completeness, and frictionless of the market as well as the…
We suggest an original physical approach to describe the mechanism of market pricing. The core of our approach is to consider pricing at different time scales separately, using independent equations of motion. Such an approach leads to a…
In this paper, we derive a representation for the value process associated to the solutions of FBSDEs in a jump-diffusion setting under multiple probability measures. Motivated by concrete financial problems, the latter representations are…
In a market of deterministic cash flows, given as an additive, symmetric relation of exchangeability on the finite signed Borel measures on the non-negative real time axis, it is shown that the only arbitrage-free price functional that…
In the context of multi-curve modeling we consider a two-curve setup, with one curve for discounting (OIS swap curve) and one for generating future cash flows (LIBOR for a give tenor). Within this context we present an approach for the…
Mathematical models for financial asset prices which include, for example, stochastic volatility or jumps are incomplete in that derivative securities are generally not replicable by trading in the underlying. In earlier work (2004) the…
Pricing derivatives goes back to the acclaimed Black and Scholes model. However, such a modeling approach is known not to be able to reproduce some of the financial stylized facts, including the dynamics of volatility. In the mathematical…
Trading a financial asset pushes its price as well as the prices of other assets, a phenomenon known as cross-impact. We consider a general class of kernel-based cross-impact models and investigate suitable parameterisations for trading…
A new framework for pricing the European currency option is developed in the case where the spot exchange rate fellows a time-changed fractional Brownian motion. An analytic formula for pricing European foreign currency option is proposed…
We study indifference pricing of exotic derivatives by using hedging strategies that take static positions in quoted derivatives but trade the underlying and cash dynamically over time. We use real quotes that come with bid-ask spreads and…
This paper develops a model for option market making in which the hedging activity of the market maker generates price impact on the underlying asset. The option order flow is modeled by Cox processes, with intensities depending on the…
Multivariate volatility modeling and forecasting are crucial in financial economics. This paper develops a copula-based approach to model and forecast realized volatility matrices. The proposed copula-based time series models can capture…
We are interested in the existence of equivalent martingale measures and the detection of arbitrage opportunities in markets where several multi-asset derivatives are traded simultaneously. More specifically, we consider a financial market…
As the FX markets continue to evolve, many institutions have started offering passive access to their internal liquidity pools. Market makers act as principal and have the opportunity to fill those orders as part of their risk management,…
This project attempts to address the problem of asset pricing in a financial market, where the interest rates and volatilities exhibit regime switching. This is an extension of the Black-Scholes model. Studies of Markov-modulated regime…