Related papers: Option pricing for Informed Traders
We consider the superhedging price of an exotic option under nondominated model uncertainty in discrete time in which the option buyer chooses some action from an (uncountable) action space at each time step. By introducing an enlarged…
This study deals with the problem of pricing compound options when the underlying asset follows a mixed fractional Brownian motion with jumps. An analytic formula for compound options is derived under the risk neutral measure. Then, these…
It is well known that the probability distribution of high-frequency financial returns is characterized by a leptokurtic, heavy-tailed shape. This behavior undermines the typical assumption of Gaussian log-returns behind the standard…
Option pricing is the most elemental challenge of mathematical finance. Knowledge of the prices of options at every strike is equivalent to knowing the entire pricing distribution for a security, as derivatives contingent on the security…
The introduction of transaction costs into the theory of option pricing could lead not only to the change of return for options, but also to the change of the volatility. On the base of assumption of the portfolio analysis, a new equation…
In the information-based approach to asset pricing the market filtration is modelled explicitly as a superposition of signals concerning relevant market factors and independent noise. The rate at which the signal is revealed to the market…
In this paper we analyze a nonlinear Black--Scholes model for option pricing under variable transaction costs. The diffusion coefficient of the nonlinear parabolic equation for the price $V$ is assumed to be a function of the underlying…
This paper presents an overview of information-based asset pricing. In this approach, an asset is defined by its cash-flow structure. The market is assumed to have access to "partial" information about future cash flows. Each cash flow is…
Option pricing is mainly based on ideal market conditions which are well represented by the Geometric Brownian Motion (GBM) as market model. We study the effect of non-ideal market conditions on the price of the option. We focus our…
We study the Option pricing with linear investment strategy based on discrete time trading of the underlying security, which unlike the existing continuous trading models provides a feasible real market implementation. Closed form formulas…
We consider an American contingent claim on a financial market where the buyer has additional information. Both agents (seller and buyer) observe the same prices, while the information available to them may differ due to some extra…
Improved bounds on the copula of a bivariate random vector are computed when partial information is available, such as the values of the copula on a given subset of $[0,1]^2$, or the value of a functional of the copula, monotone with…
The paper studies sub and super-replication price bounds for contingent claims defined on general trajectory based market models. No prior probabilistic or topological assumptions are placed on the trajectory space, trading is assumed to…
This paper introduces an information-based model for the pricing of storable commodities such as crude oil and natural gas. The model uses the concept of market information about future supply and demand as a basis for valuation. Physical…
In this paper I empirically investigate prediction markets for binary options. Advocates of prediction markets have suggested that asset prices are consistent estimators of the "true" probability of a state of the world being realized. I…
We present an empirical study of the subordination hypothesis for a stochastic time series of a stock price. The fluctuating rate of trading is identified with the stochastic variance of the stock price, as in the continuous-time random…
In this paper, we are concerned with the valuation of Guaranteed Annuity Options (GAOs) under the most generalised modelling framework where both interest and mortality rates are stochastic and correlated. Pricing these type of options in…
In previous works Avellaneda et al. pioneered the pricing and hedging of index options - products highly sensitive to implied volatility and correlation assumptions - with large deviations methods, assuming local volatility dynamics for all…
We characterize the price of a European option on several assets for a very risk averse seller, in a market with small transaction costs as a solution of a nonlinear diffusion equation. This problem turns out to be one of asymptotic…
It is known from previous work of the authors that non-negative arbitrage free price processes in finance can be described in terms of filtered likelihood processes of statistical experiments and vice versa. The present paper summarizes and…