Related papers: Robust Trading of Implied Skew

We consider a class of assets whose risk-neutral pricing dynamics are described by an exponential L\'evy-type process subject to default. The class of processes we consider features locally-dependent drift, diffusion and default-intensity…

This paper investigates the equilibrium portfolio selection for smooth ambiguity preferences in a continuous-time market. The investor is uncertain about the risky asset's drift term and updates the subjective belief according to the…

The literature on provable robustness in machine learning has primarily focused on static prediction problems, such as image classification, in which input samples are assumed to be independent and model performance is measured as an…

The key objective of this paper is to develop an empirical model for pricing SPX options that can be simulated over future paths of the SPX. To accomplish this, we formulate and rigorously evaluate several statistical models, including…

We derive asymptotic expansions for the prices of a variety of European and barrier-style claims in a general local-stochastic volatility setting. Our method combines Taylor series expansions of the diffusion coefficients with an expansion…

In this paper the valuation problem of a European call option in presence of both stochastic volatility and transaction costs is considered. In the limit of small transaction costs and fast mean reversion, an asymptotic expression for the…

We use a continuous version of the standard deviation premium principle for pricing in incomplete equity markets by assuming that the investor issuing an unhedgeable derivative security requires compensation for this risk in the form of a…

Shorting for hedging exposes to risk when the market dynamics is uncertain. Managing uncertainty and risk exposure is key in portfolio management practice. This paper develops a robust framework for dynamic minimum-variance hedging that…

Paper is based on "The cost of illiquidity and its effects on hedging", L. C. G. Rogers and Surbjeet Singh, 2010. We generalize its thesis to constant elasticity model, which own previously used Black-Schoels model as a special case. The…

This paper presents an option pricing model that incorporates clustered jumps using a bivariate Hawkes process. The process captures both self- and cross-excitation of positive and negative jumps, enabling the model to generate return…

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…

Closed form option pricing formulae explaining skew and smile are obtained within a parsimonious non-Gaussian framework. We extend the non-Gaussian option pricing model of L. Borland (Quantitative Finance, {\bf 2}, 415-431, 2002) to include…

We propose and experimentally demonstrate an innovative stock index prediction method using a weighted optical reservoir computing system. We construct fundamental market data combined with macroeconomic data and technical indicators to…

We consider stochastic volatility models under parameter uncertainty and investigate how model derived prices of European options are affected. We let the pricing parameters evolve dynamically in time within a specified region, and…

Algorithmic trading relies on machine learning models to make trading decisions. Despite strong in-sample performance, these models often degrade when confronted with evolving real-world market regimes, which can shift dramatically due to…

This paper studies equity basket options -- i.e., multi-dimensional derivatives whose payoffs depend on the value of a weighted sum of the underlying stocks -- and develops a new and innovative approach to ensure consistency between options…

We show that the frequent claim that the implied tree prices exotic options consistently with the market is untrue if the local volatilities are subject to change and the market is arbitrage-free. In the process, we analyse -- in the most…

We develop robust pricing and hedging of a weighted variance swap when market prices for a finite number of co--maturing put options are given. We assume the given prices do not admit arbitrage and deduce no-arbitrage bounds on the weighted…

In the frictionless discrete time financial market of Bouchard et al.(2015) we consider a trader who, due to regulatory requirements or internal risk management reasons, is required to hedge a claim $\xi$ in a risk-conservative way relative…

The paper summarizes key results of the benchmark approach with a focus on the concept of benchmark-neutral pricing. It applies these results to the pricing of an extreme-maturity European put option on a well-diversified stock index. The…