Related papers: Robust Trading of Implied Skew
It is a market practice to express market-implied volatilities in some parametric form. The most popular parametrizations are based on or inspired by an underlying stochastic model, like the Heston model (SVI method) or the SABR model (SABR…
Under a generalized skew normal distribution we consider the problem of European option pricing. Existence of the martingale measure is proved. An explicit expression for a given European option price is presented in terms of the cumulative…
We propose an alternative approach towards cost mitigation in volatility-managed portfolios based on smoothing the predictive density of an otherwise standard stochastic volatility model. Specifically, we develop a novel variational Bayes…
In this article we introduce a portfolio optimisation framework, in which the use of rough path signatures (Lyons, 1998) provides a novel method of incorporating path-dependencies in the joint signal-asset dynamics, naturally extending…
The implied volatility skew has received relatively little attention in the literature on short-term asymptotics for financial models with jumps, despite its importance in model selection and calibration. We rectify this by providing…
We present an Hilbert space formulation for a set of implied volatility models introduced in \cite{BraceGoldys01} in which the authors studied conditions for a family of European call options, varying the maturing time and the strike price…
We present a neural network (NN) approach to fit and predict implied volatility surfaces (IVSs). Atypically to standard NN applications, financial industry practitioners use such models equally to replicate market prices and to value other…
We consider model-free pricing of digital options, which pay out if the underlying asset has crossed both upper and lower barriers. We make only weak assumptions about the underlying process (typically continuity), but assume that the…
We develop a methodology for index tracking and risk exposure control using financial derivatives. Under a continuous-time diffusion framework for price evolution, we present a pathwise approach to construct dynamic portfolios of…
We present a dynamic hedging scheme for S&P 500 options, where rebalancing decisions are enhanced by integrating information about the implied volatility surface dynamics. The optimal hedging strategy is obtained through a deep policy…
We present a semi-static hedging algorithm for callable interest rate derivatives under an affine, multi-factor term-structure model. With a traditional dynamic hedge, the replication portfolio needs to be updated continuously through time…
We propose a probabilistic framework for pricing derivatives, which acknowledges that information and beliefs are subjective. Market prices can be translated into implied probabilities. In particular, futures imply returns for these implied…
The implied volatility is a crucial element of any financial toolbox, since it is used for quoting and the hedging of options as well as for model calibration. In contrast to the Black-Scholes formula its inverse, the implied volatility, is…
We investigate whether it is possible to formulate option pricing and hedging models without using probability. We present a model that is consistent with two notions of volatility: a historical volatility consistent with statistical…
We examine the possibility of incorporating information or views of market movements during the holding period of a portfolio, in the hedging of European options with respect to the underlying. Given a fixed holding period interval, we…
In this paper, we extend the existing double linear policy by incorporating time-varying weights instead of constant weights and study a certain robustness property, called robust positive expectation (RPE), in a discrete-time setting. We…
The Black-Scholes model gives vanilla Europen call option prices as a function of the volatility. We prove Lipschitz stability in the inverse problem of determining the implied volatility, which is a function of the underlying asset, from a…
We consider the problem of valuing a European option written on an asset whose dynamics are described by an exponential L\'evy-type model. In our framework, both the volatility and jump-intensity are allowed to vary stochastically in time…
This paper expands traditional stochastic volatility models by allowing for time-varying skewness without imposing it. While dynamic asymmetry may capture the likely direction of future asset returns, it comes at the risk of leading to…
The paper studies estimation of parameters of diffusion market models from historical data. The standard definition of implied volatility for these models presents its value as an implicit function of several parameters, including the…