Related papers: Another Look at the Ho-Lee Bond Option Pricing Mod…
We propose a model to study the effects of delayed information on option pricing. We first talk about the absence of arbitrage in our model, and then discuss super replication with delayed information in a binomial model, notably, we…
We propose a Fundamental Theorem of Asset Pricing and a Super-Replication Theorem in a model-independent framework. We prove these theorems in the setting of finite, discrete time and a market consisting of a risky asset S as well as…
In this paper we extend the theory of option pricing to take into account and explain the empirical evidence for asset prices such as non-Gaussian returns, long-range dependence, volatility clustering, non-Gaussian copula dependence, as…
In this paper, we develop Stein's method for binomial approximation using the stop-loss metric that allows one to obtain a bound on the error term between the expectation of call functions. We obtain the results for a locally dependent…
The classical approach in finance attempts to model the term structure of interest rates using specified stochastic processes and the no arbitrage argument. Up to now, no universally accepted theory has been obtained for the description of…
The technique of "extension" allows to build $(n+1)$-dimensional Hamiltonian systems with a non-trivial polynomial in the momenta first integral of any given degree starting from a $n$-dimensional Hamiltonian satisfying some additional…
Pricing and hedging exotic options using local stochastic volatility models drew a serious attention within the last decade, and nowadays became almost a standard approach to this problem. In this paper we show how this framework could be…
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…
This paper deals with asset price bubbles modeled by strict local martingales. With any strict local martingale, one can associate a new measure, which is studied in detail in the first part of the paper. In the second part, we determine…
We derive a new high-order compact finite difference scheme for option pricing in stochastic volatility models. The scheme is fourth-order accurate in space and second-order accurate in time. Under some restrictions, theoretical results…
In this note we discuss - in what is intended to be a pedagogical fashion - FX option pricing in target zones with attainable boundaries. The boundaries must be reflecting. The no-arbitrage requirement implies that the differential (foreign…
For pricing American options, %after suitable discretization in space and time, a sequence of discrete linear complementarity problems (LCPs) or equivalently Hamilton-Jacobi-Bellman (HJB) equations need to be solved in a sequential…
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 develop the fundamental theorem of asset pricing in a probability-free infinite-dimensional setup. We replace the usual assumption of a prior probability by a certain continuity property in the state variable. Probabilities enter then…
The rules for the free fermionic string model construction are extended to include general non-abelian orbifold constructions that go beyond the real fermionic approach. This generalization is also applied to the asymmetric orbifold rules…
The paper studies the concepts of hedging and arbitrage in a non probabilistic framework. It provides conditions for non probabilistic arbitrage based on the topological structure of the trajectory space and makes connections with the usual…
We consider the computation of model-free bounds for multi-asset options in a setting that combines dependence uncertainty with additional information on the dependence structure. More specifically, we consider the setting where the…
In this paper we introduce an additive two-factor model for electricity futures prices based on Normal Inverse Gaussian L\'evy processes, that fulfills a no-overlapping-arbitrage (NOA) condition. We compute European option prices by Fourier…
Systems invariant under the reparametrization of time were treated as constrained systems within Hamilton-Jacobi formalism. After imposing the integrability conditions the time-dependent Schr\"odinger equation was obtained. Three examples…
The utility-based pricing of defaultable bonds in the case of stochastic intensity models of default risk is discussed. The Hamilton-Jacobi- Bellman (HJB) equations for the value functions is derived. A finite difference method is used to…