Related papers: Pricing Variance Swaps on Time-Changed Markov Proc…

This paper considers options pricing when the assumption of normality is replaced with that of the symmetry of the underlying distribution. Such a market affords many equivalent martingale measures (EMM). However we argue (as in the…

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 derive the exact solution of a one-dimensional Markov functional model with log-normally distributed interest rates in discrete time. The model is shown to have two distinct limiting states, corresponding to small and asymptotically…

We consider the pricing of variable annuities (VAs) with general fee structures under popular stochastic volatility models such as Heston, Hull-White, Scott, $\alpha$-Hypergeometric, $3/2$, and $4/2$ models. In particular, we analyze the…

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…

In this paper, we consider a discrete time economy where we assume that the short term interest rate follows a quadratic term structure of a regime switching asset process. The possible non-linear structure and the fact that the interest…

In the present paper we present a finite element approach for option pricing in the framework of a well-known stochastic volatility model with jumps, the Bates model. In this model the asset log-returns are assumed to follow a…

In this article, we investigate whether exchange rate risk is priced. We use a multivariate GARCH-in-Mean specification and test alternative conditional international CAPM versions. Our results support strongly the international…

In this work, we consider the issue of pricing exchange options and spread options with stochastic interest rates. We provide the closed form solution for the exchange option price when interest rate is stochastic. Our result holds when…

We carry out a detailed large-scale data analysis of price response functions in the spot foreign exchange market for different years and different time scales. Such response functions provide quantitative information on the deviation from…

This paper proposes a hierarchical modeling approach to perform stochastic model specification in Markov switching vector error correction models. We assume that a common distribution gives rise to the regime-specific regression…

In this paper we present an algorithm for pricing barrier options in one-dimensional Markov models. The approach rests on the construction of an approximating continuous-time Markov chain that closely follows the dynamics of the given…

We build a sequence of empirical measures on the space D(R_+,R^d) of R^d-valued c\`adl\`ag functions on R_+ in order to approximate the law of a stationary R^d-valued Markov and Feller process (X_t). We obtain some general results of…

Any exchangeable Markov processes on $[k]^{\mathbb{N}}$ with cadlag sample paths projects to a Markov process on the simplex whose sample paths are cadlag and of locally bounded variation. Furthermore, any such process has a de Finetti-type…

We derived similar to Bo et al. (2010) results but in the case when the dynamics of the FX rate is driven by a general Merton jump-diffusion process. The main results of our paper are as follows: 1) formulas for the Esscher transform…

We model the logarithm of the price (log-price) of a financial asset as a random variable obtained by projecting an operator stable random vector with a scaling index matrix $\underline{\underline{E}}$ onto a non-random vector. The scaling…

We present a stochastic analysis of a data set consisiting of 10^6 quotes of the US Doller - German Mark exchange rate. Evidence is given that the price changes x(tau) upon different delay times tau can be described as a Markov process…

We propose a method to approximate continuous-time, continuous-state stochastic processes by a discrete-time Markov chain defined on a nonuniform grid. Our method provides exact moment matching for processes whose first and second moments…

This paper presents closed-form analytical formulas for pricing volatility and variance derivatives with nonlinear payoffs under discrete-time observations. The analysis is based on a probabilistic approach assuming that the underlying…

A new branch based on Markov processes is developing in the recent literature of financial time series modeling. In this paper, an Indexed Markov Chain has been used to model high frequency price returns of quoted firms. The peculiarity of…