Related papers: A closed-form formula for pricing bonds between co…
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…
Given a finite set of European call option prices on a single underlying, we want to know when there is a market model which is consistent with these prices. In contrast to previous studies, we allow models where the underlying trades at a…
We construct models for the pricing and risk management of inflation-linked derivatives. The models are rational in the sense that linear payoffs written on the consumer price index have prices that are rational functions of the state…
The purpose of the paper is to present a new pricing method for clean spread options, and to illustrate its main features on a set of numerical examples produced by a dedicated computer code. The novelty of the approach is embedded in the…
At the ultra high frequency level, the notion of price of an asset is very ambiguous. Indeed, many different prices can be defined (last traded price, best bid price, mid price,...). Thus, in practice, market participants face the problem…
We suggest an intermediate currency approach that allows us to price options on all FX markets simultaneously under the same risk-neutral measure which ensures consistency of FX option prices across all markets. In particular, it is…
Option written on several foreign exchange rates (FXRs) depends on correlation between the rates. To evaluate the option, historical estimates for correlations can be used but usually they are not stable. More significantly, pricing of the…
There is no exact closed form formula for pricing of European options with discrete cash dividends under the model where the underlying asset price follows a piecewise lognormal process with jumps at dividend ex-dates. This paper presents…
We consider a financial market with zero-coupon bonds that are exposed to credit and liquidity risk. We revisit the famous Jarrow & Turnbull setting in order to account for these two intricately intertwined risk types. We utilise the…
This paper introduces a semi-analytical method for pricing American options on assets (stocks, ETFs) that pay discrete and/or continuous dividends. The problem is notoriously complex because discrete dividends create abrupt price drops and…
Refining a discrete model of Cheuk and Vorst we obtain a closed formula for the price of a European lookback option at any time between emission and maturity. We derive an asymptotic expansion of the price as the number of periods tends to…
In this paper the Buchen's pricing formulae of (higher order) asset and bond binary options are incorporated into the pricing formula of power binary options and a pricing formula of "the normal distribution standard options" with the…
We describe a model of a communication network that allows us to price complex network services as financial derivative contracts based on the spot price of the capacity in individual routers. We prove a theorem of a Girsanov transform that…
I explicitly work out closed form solutions for the optimal hedging strategies (in the sense of Bouchaud and Sornette) in the case of European call options, where the underlying is modeled by (unbiased) iid additive returns with Student-t…
We investigate the problem of pricing and hedging derivatives of Electricity Futures contract when the underlying asset is not available. We propose to use a cross hedging strategy based on the Futures contract covering the larger delivery…
We present cross and time series analysis of price fluctuations in the U.S. Treasury fixed income market. By means of techniques borrowed from statistical physics we show that the correlation among bonds depends strongly on the maturity and…
In corporate bond markets, which are mainly OTC markets, market makers play a central role by providing bid and ask prices for a large number of bonds to asset managers from all around the globe. Determining the optimal bid and ask quotes…
In this article we show how to analyze the covariation of bond prices nonparametrically and robustly, staying consistent with a general no-arbitrage setting. This is, in particular, motivated by the problem of identifying the number of…
Persistent shifts in term-structure dynamics undermine the stability of single-regime models in long samples. We develop an arbitrage-free regime-switching generalized CIR (RS-GCIR) model that jointly prices the Chinese government bond…
We consider the problem of computing upper and lower bounds on the price of a European basket call option, given prices on other similar baskets. Although this problem is very hard to solve exactly in the general case, we show that in some…