Related papers: Pricing Derivatives in Hermite Markets
The objective of the paper is to price weather contracts using temperature as the underlying process when the later follows a mean-reverting dynamics driven by a time-changed Brownian motion coupled to a Gamma Levy subordinator and…
Derivative pricing is about cash flow discounting at the riskfree rate. This teaching has lost its meaning post the financial crisis, due to the addition of extra value adjustments (XVA), which also made derivatives pricing and valuation a…
With model uncertainty characterized by a convex, possibly non-dominated set of probability measures, the agent minimizes the cost of hedging a path dependent contingent claim with given expected success ratio, in a discrete-time,…
We investigate possible origins of trends using a deterministic threshold model, where we refer to long-term variabilities of price changes (price movements) in financial markets as trends. From the investigation we find two phenomena. One…
One the one hand, rough volatility has been shown to provide a consistent framework to capture the properties of stock price dynamics both under the historical measure and for pricing purposes. On the other hand, market price of volatility…
Recent technological development has enabled researchers to study social phenomena scientifically in detail and financial markets has particularly attracted physicists since the Brownian motion has played the key role as in physics. In our…
We introduce a criterion how to price derivatives in incomplete markets, based on the theory of growth optimal strategy in repeated multiplicative games. We present reasons why these growth-optimal strategies should be particularly relevant…
Contrary to the claims made by several authors, a financial market model in which the price of a risky security follows a reflected geometric Brownian motion is not arbitrage-free. In fact, such models violate even the weakest no-arbitrage…
We introduce a general class of stochastic processes driven by a multifractional Brownian motion (mBm) and study the estimation problems of their pointwise H\"older exponents (PHE) based on a new localized generalized quadratic variation…
Freight rate derivatives constitute a very popular financial tool in shipping industry, that allows to the market participants and the individuals operating in the field, to reassure their financial positions against the risk occurred by…
We continue the analysis of our previous paper (Czichowsky/Schachermayer/Yang 2014) pertaining to the existence of a shadow price process for portfolio optimisation under proportional transaction costs. There, we established a positive…
The Generalized fractional Brownian motion (gfBm) is a stochastic process that acts as a generalization for both fractional, sub-fractional, and standard Brownian motion. Here we study its use as the main driver for price fluctuations,…
In this article we propose a study of market models starting from a set of axioms, as one does in the case of risk measures. We define a market model simply as a mapping from the set of adapted strategies to the set of random variables…
In the context of an incomplete market with a Brownian filtration and a fixed finite time horizon, this paper proves that for general dynamic convex risk measures, the buyer's and seller's risk indifference prices of a contingent claim are…
By using Malliavin calculus, Bismut derivative formulae are established for a class of stochastic (functional) differential equations driven by fractional Brownian motions. As applications, Harnack type inequalities and strong Feller…
Market-based coordination of demand side assets has gained great interests in recent years. In spite of its efficiency, there is a risk that the interaction between the dynamic assets through the price signal could result in an unstable…
The main focus of this work is to understand the dynamics of non regulated markets. The present model can describe the dynamics of any market where the pricing is based on supply and demand. It will be applied here, as an example, for the…
In this paper, we focus on the estimation of historical volatility of asset prices from high-frequency data. Stochastic volatility models pose a major statistical challenge: since in reality historical volatility is not observable, its…
We develop a robust framework for pricing and hedging of derivative securities in discrete-time financial markets. We consider markets with both dynamically and statically traded assets and make minimal measurability assumptions. We obtain…
We consider a financial market in discrete time and study pricing and hedging conditional on the information available up to an arbitrary point in time. In this conditional framework, we determine the structure of arbitrage-free prices.…