Related papers: A closed-form formula for pricing bonds between co…
The pricing of options, warrants and other derivative securities is one of the great success of financial economics. These financial products can be modeled and simulated using quantum mechanical instruments based on a Hamiltonian…
In this article, we study the problem of pricing defaultable bond with discrete default intensity and barrier under constant risk free short rate using higher order binary options and their integrals. In our credit risk model, the risk free…
ISPs are increasingly selling "tiered" contracts, which offer Internet connectivity to wholesale customers in bundles, at rates based on the cost of the links that the traffic in the bundle is traversing. Although providers have already…
We present a neural-network valuation of financial derivatives in the case of fat-tailed underlying asset returns. A two-layer perceptron is trained on simulated prices taking into account the well-known effect of volatility smile. The…
We derive measurable lower bounds on concurrence of arbitrary mixed states, for both bipartite and multipartite cases. First, we construct measurable lower bonds on the purely algebraic bounds of concurrence [F. Mintert et al. (2004), Phys.…
We propose a model for the credit markets in which the random default times of bonds are assumed to be given as functions of one or more independent "market factors". Market participants are assumed to have partial information about each of…
We present an extension to a certified financial contract management system that allows for templated declarative financial contracts and for integration with financial stochastic models through verified compilation into so-called…
This paper provides a methodology for fast and accurate pricing of the long-dated contracts that arise as the building blocks of insurance and pension fund agreements. It applies the recursive marginal quantization (RMQ) and joint recursive…
Financial derivatives are contracts that can have a complex payoff dependent upon underlying benchmark assets. In this work, we present a quantum algorithm for the Monte Carlo pricing of financial derivatives. We show how the relevant…
We propose an elementary model to price European physical delivery swaptions in multicurve setting with a simple exact closed formula. The proposed model is very parsimonious: it is a three-parameter multicurve extension of the…
This paper studies the impact of funding market frictions on bond prices and market-wide liquidity. Using proprietary transaction-level data on all gilt-backed repo and reverse-repo trades, we demonstrate how the market power of individual…
In fixed income sector, the yield curve is probably the most observed indicator by the market for trading and fifinancing purposes. A yield curve plots interest rates across different contract maturities from short end to as long as 30…
We consider option pricing using replicating binomial trees, with a two fold purpose. The first is to introduce ESG valuation into option pricing. We explore this in a number of scenarios, including enhancement of yield due to trader…
This study deals with the pricing and hedging of single-tranche collateralized debt obligations (STCDOs). We specify an affine two-factor model in which a catastrophic risk component is incorporated. Apart from being analytically tractable,…
In this paper we present formulas for the valuation of debt and equity of firms in a financial network under comonotonic endowments. We demonstrate that the comonotonic setting provides a lower bound and Jensen's inequality provides an…
In this paper we propose a tractable quadratic programming formulation for calculating the equilibrium term structure of electricity prices. We rely on a theoretical model described in [21], but extend it so that it reflects actually traded…
We apply a utility-based method to obtain the value of a finite-time investment opportunity when the underlying real asset is not perfectly correlated to a traded financial asset. Using a discrete-time algorithm to calculate the…
Two novel closed-form formulas for the price of barrier options in stochastic volatility models with zero interest rate and dividend yield but nonzero correlation between the asset and its instantaneous volatility are derived. The first is…
In this paper we study the pricing and hedging of structured products in energy markets, such as swing and virtual gas storage, using the exponential utility indifference pricing approach in a general incomplete multivariate market model…
In the standard Black-Scholes-Merton framework, dividends are represented as a continuous dividend yield and the pricing of Vanilla options on a stock is achieved through the well-known Black-Scholes formula. In reality however, stocks pay…