Related papers: Filling the gaps smoothly
In this paper, a new approach for solving the problems of pricing and hedging derivatives is introduced in a general frictionless market setting. The method is applicable even in cases where an equivalent local martingale measure fails to…
One way of improving the behavior of finite element schemes for classical, time-dependent Maxwell's equations, is to render them from their hyperbolic character to elliptic form. This paper is devoted to the study of the stabilized linear…
We consider an asset whose risk-neutral dynamics are described by a general class of local-stochastic volatility models and derive a family of asymptotic expansions for European-style option prices and implied volatilities. Our implied…
This work presents an analytical and computational study of fractional-order delay differential equations formulated using both the conformable and Caputo derivatives. For the conformable case, we develop the associated integral,…
Stochastic volatility (SV) and local stochastic volatility (LSV) processes can be used to model the evolution of various financial variables such as FX rates, stock prices, and so on. Considerable efforts have been devoted to pricing…
In this article we propose a new adaptive numerical quadrature procedure which includes both local subdivision of the integration domain, as well as local variation of the number of quadrature points employed on each subinterval. In this…
In this paper, finite element method is applied to Leland's model for numerical simulation of option pricing with transaction costs. Spatial finite element models based on P1 and/or P2 elements are formulated in combination with a…
With some transformations, we convert the problem of option pricing under state-dependent volatility into an initial value problem of the Fokker-Planck equation with a certain potential. By using the Lie symmetry analysis and similarity…
Using classical Taylor series techniques, we develop a unified approach to pricing and implied volatility for European-style options in a general local-stochastic volatility setting. Our price approximations require only a normal CDF and…
Missing data is a common problem in finance and often requires methods to fill in the gaps, or in other words, imputation. In this work, we focused on the imputation of missing implied volatilities for FX options. Prior work has used…
We propose a time-adaptive, high-order compact finite difference scheme for option pricing in a family of stochastic volatility models. We employ a semi-discrete high-order compact finite difference method for the spatial discretisation,…
In this paper, we present a new derivative via the Laplace transform. The Laplace transform leads to a natural form of the fractional derivative which is equivalent to a Riemann-Liouville derivative with fixed terminal point. We first…
We consider closed-form approximations for European put option prices within the Heston and GARCH diffusion stochastic volatility models with time-dependent parameters. Our methodology involves writing the put option price as an expectation…
Recent literature seek to forecast implied volatility derived from equity, index, foreign exchange, and interest rate options using latent factor and parametric frameworks. Motivated by increased public attention borne out of the…
Local solutions for variational and quasi-variational inequalities are usually the best type of solutions that could practically be obtained when in case of lack of convexity or else when available numerical techniques are too limited for…
We consider the pricing of derivatives in a setting with trading restrictions, but without any probabilistic assumptions on the underlying model, in discrete and continuous time. In particular, we assume that European put or call options…
The Local Volatility model is a well-known extension of the Black-Scholes constant volatility model whereby the volatility is dependent on both time and the underlying asset. This model can be calibrated to provide a perfect fit to a wide…
The standard mixed finite element approximations of Hodge Laplace problems associated with the de Rham complex are based on proper discrete subcomplexes. As a consequence, the exterior derivatives, which are local operators, are computed…
We develop an expansion approach for the pricing of European quanto options written on LIBOR rates (of a foreign currency). We derive the dynamics of the system of foreign LIBOR rates under the domestic forward measure and then consider the…
We address the so-called calibration problem which consists of fitting in a tractable way a given model to a specified term structure like, e.g., yield or default probability curves. Time-homogeneous jump-diffusions like Vasicek or…