Related papers: Robust Trading of Implied Skew
Observing prices of European put and call options, we calibrate exponential L\'evy models nonparametrically. We discuss the efficient implementation of the spectral estimation procedures for L\'evy models of finite jump activity as well as…
We review and illustrate how the volatility smile translates into a probability distribution, the market-implied probability distribution representing believes priced in. The effects of changes in the smile are examined. Special attention…
Accurate forecasting of volatility and return quantiles is essential for evaluating financial tail risks such as value-at-risk and expected shortfall. This study proposes an extension of the traditional stochastic volatility model, termed…
In this paper we derive robust super- and subhedging dualities for contingent claims that can depend on several underlying assets. In addition to strict super- and subhedging, we also consider relaxed versions which, instead of eliminating…
We consider a portfolio with call option and the corresponding underlying asset under the standard assumption that stock-market price represents a random variable with lognormal distribution. Minimizing the variance (hedging risk) of the…
Statistical arbitrage methods identify mispricings in securities with the goal of building portfolios which are weakly correlated with the market. In pairs trading, an arbitrage opportunity is identified by observing relative price…
We develop a dynamic version of the SSVI parameterisation for the total implied variance, ensuring that European vanilla option prices are martingales, hence preventing the occurrence of arbitrage, both static and dynamic. Insisting on the…
The skew stickiness ratio is a statistic that captures the joint dynamics of an asset price and its volatility. We derive a representation formula for this quantity using the It\^o-Wentzell and Clark-Ocone formulae, and we apply it to…
We consider a trader who wants to direct his portfolio towards a set of acceptable wealths given by a convex risk measure. We propose a black-box algorithm, whose inputs are the joint law of stock prices and the convex risk measure, and…
This paper studies the equal risk pricing (ERP) framework for the valuation of European financial derivatives. This option pricing approach is consistent with global trading strategies by setting the premium as the value such that the…
The recent empirical work of Amaya et al. (2015) has pointed out that the realized skewness, which is the sample skewness of intraday high-frequency returns of a financial asset, serves as forecasting future returns in the cross-section.…
We devise a novel method for nowcasting implied volatility based on neural operators. Better known as implied volatility smoothing in the financial industry, nowcasting of implied volatility means constructing a smooth surface that is…
We study the construction and rebalancing of sparse index-tracking portfolios from an operational research perspective, with explicit emphasis on uncertainty quantification and implementability. The decision variables are portfolio weights…
We study continuous-time portfolio choice with nonlinear payoffs under smooth ambiguity and Bayesian learning. We develop a general framework for dynamic, non-concave asset allocation that accommodates nonlinear payoffs, broad utility…
We propose a non-parametric extension with leverage functions to the Andersen commodity curve model. We calibrate this model to market data for WTI and NG including option skew at the standard maturities. While the model can be calibrated…
We discuss the asymptotic behaviour of risk-based indifference prices of European contingent claims in discrete-time financial markets under volatility uncertainty as the number of intermediate trading periods tends to infinity. The…
Optimal pricing of European call option is described by linear stochastic differential equation. Trading strategy given by a twin of stochastic variables was integrated w.r.t. Black-Scholes formula to adopt optimal pricing to tarading…
We formulate and analyze an inverse problem using derivatives prices to obtain an implied filtering density on volatility's hidden state. Stochastic volatility is the unobserved state in a hidden Markov model (HMM) and can be tracked using…
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 consider the hedging of European options when the price of the underlying asset follows a single-factor Markovian framework. By working in such a setting, Carr and Wu \cite{carr2014static} derived a spanning relation between a given…