Related papers: Pricing Weakly Model Dependent Barrier Products
We show how inter-asset dependence information derived from market prices of options can lead to improved model-free price bounds for multi-asset derivatives. Depending on the type of the traded option, we either extract correlation…
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…
We propose an efficient lattice procedure which permits to obtain European and American option prices under the Black and Scholes model for digital options with barrier features. Numerical results show the accuracy of the proposed method.
The use of sequential Monte Carlo within simulation for path-dependent option pricing is proposed and evaluated. Recently, it was shown that explicit solutions and importance sampling are valuable for efficient simulation of spot price and…
Maintaining the stability of renewable-dominant power systems requires the procurement of virtual inertia services from non-synchronous resources (e.g., batteries, wind turbines) in addition to inertia traditionally provided by synchronous…
To choose between two discrete goods, a consumer pays attention to only those with prices below a threshold. From these, she chooses her most preferred good. We assume consumers in a population have the same preference but may have…
This article presents a generic model for pricing financial derivatives subject to counterparty credit risk. Both unilateral and bilateral types of credit risks are considered. Our study shows that credit risk should be modeled as American…
We investigate pricing-hedging duality for American options in discrete time financial models where some assets are traded dynamically and others, e.g. a family of European options, only statically. In the first part of the paper we…
Recently, chance-constrained stochastic electricity market designs have been proposed to address the shortcomings of scenario-based stochastic market designs. In particular, the use of chance-constrained market-clearing avoids trading off…
We present a reduced basis method for the simulation of American option pricing. To tackle this model numerically, we formulate the problem in terms of a time dependent variational inequality. Characteristic ingredients are a POD-greedy and…
In this paper is proposed a 2 factor structural PDE model of pricing puttable bond with credit risk and derived the analytical pricing formula. To this end, first, a 2 factor structural (PDE) model of pricing zero coupon bond with credit…
Rendering fair prices for financial, credit, and insurance products is of ethical and regulatory interest. In many jurisdictions, discriminatory covariates, such as gender and ethnicity, are prohibited from use in pricing such instruments.…
We give a detailed characterization of optimal trades under budget constraints in a prediction market with a cost-function-based automated market maker. We study how the budget constraints of individual traders affect their ability to…
This paper presents a new model for pricing financial derivatives subject to collateralization. It allows for collateral arrangements adhering to bankruptcy laws. As such, the model can back out the market price of a collateralized…
In this paper we describe how to include funding and margining costs into a risk-neutral pricing framework for counterparty credit risk. We consider realistic settings and we include in our models the common market practices suggested by…
In this paper, we consider the problem of equal risk pricing and hedging in which the fair price of an option is the price that exposes both sides of the contract to the same level of risk. Focusing for the first time on the context where…
It is standard practice in online retail to run pricing experiments by randomizing at the article-level, i.e. by changing prices of different products to identify treatment effects. Due to customers' cross-price substitution behavior, such…
We provide series expansions for the tempered stable densities and for the price of European-style contracts in the exponential L\'evy model driven by the tempered stable process. These formulas recover several popular option pricing…
Pricing of exotic financial derivatives, such as Asian and multi-asset American basket options, poses significant challenges for standard numerical methods such as binomial trees or Monte Carlo methods. While the former often scales…
This paper studies the pricing of contingent claims of American style, using indifference pricing by fully dynamic convex risk measures. We provide a general definition of risk-indifference prices for buyers and sellers in continuous time,…