Related papers: Option pricing for Informed Traders

We propose indifference pricing to estimate the value of the weak information. Our framework allows for tractability, quantifying the amount of additional information, and permits the description of the smallness and the stability with…

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…

The author presents alternatives to the Black-Scholes european call option pricing model by incorporating different transaction cost structures in the replicating strategy. In particular, an exponentially decreasing structure is proposed…

"Fundamental theorem of asset pricing" roughly states that absence of arbitrage opportunity in a market is equivalent to the existence of a risk-neutral probability. We give a simple counterexample to this oversimplified statement. Prices…

This paper explores the concept of random-time subordination in modelling stock-price dynamics, and We first present results on the Laplace distribution as a Gaussian variance-mixture, in particular a more efficient volatility estimation…

In commodity and energy markets swing options allow the buyer to hedge against futures price fluctuations and to select its preferred delivery strategy within daily or periodic constraints, possibly fixed by observing quoted futures…

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…

There exist several methods how more general options can be priced with call prices. In this article, we extend these results to cover a wider class of options and market models. In particular, we introduce a new pricing formula which can…

We consider fundamental questions of arbitrage pricing arising when the uncertainty model is given by a set of possible mutually singular probability measures. With a single probability model, essential equivalence between the absence of…

We propose a discrete time algorithm for the valuation of employee stock options based on exponential indifference prices and taking into account both the possibility of partial exercise of a fraction of the options and the use of a…

Option pricing is an integral part of modern financial risk management. The well-known Black and Scholes (1973) formula is commonly used for this purpose. This paper is an attempt to extend their work to a situation in which the…

This paper is a contribution to the Proceedings of the Workshop Complexity, Metastability and Nonextensivity held in Erice 20-26 July 2004, to be published by World Scientific. We propose a generalization to Merton's model for evaluating…

A new framework for asset pricing based on modelling the information available to market participants is presented. Each asset is characterised by the cash flows it generates. Each cash flow is expressed as a function of one or more…

The paper investigates the performance of the European option price when the log asset price follows a rich class of Generalized Tempered Stable (GTS) distribution. The GTS distribution is an alternative to Normal distribution and…

Several models for the pricing of derivative securities in illiquid markets are discussed. A typical type of nonlinear partial differential equations arising from these investigation is studied. The scaling properties of these equations are…

This paper deals with a high-order accurate implicit finite-difference approach to the pricing of barrier options. In this way various types of barrier options are priced, including barrier options paying rebates, and options on…

The aim of this paper is to present a simple stochastic model that accounts for the effects of a long-memory in volatility on option pricing. The starting point is the stochastic Black-Scholes equation involving volatility with long-range…

In this article we develop an explicit formula for pricing European options when the underlying stock price follows a non-linear stochastic differential delay equation (sdde). We believe that the proposed model is sufficiently flexible to…

In this paper, we focus on option pricing models based on space-time fractional diffusion. We briefly revise recent results which show that the option price can be represented in the terms of rapidly converging double-series and apply these…

In this work we generalize standard Decision Theory by assuming that two outcomes can also be incomparable. Two motivating scenarios show how incomparability may be helpful to represent those situations where, due to lack of information,…