Related papers: On the binomial approximation of the American put
Options are financial instruments that depend on the underlying stock. We explain their non-Gaussian fluctuations using the nonextensive thermodynamics parameter $q$. A generalized form of the Black-Scholes (B-S) partial differential…
We present a parallel algorithm that computes the ask and bid prices of an American option when proportional transaction costs apply to the trading of the underlying asset. The algorithm computes the prices on recombining binomial trees,…
We derive closed-form solutions to the optimal stopping problems related to the pricing of perpetual American standard and lookback put and call options in the extensions of the Black-Merton-Scholes model with progressively enlarged…
We analyze approximation rates by deep ReLU networks of a class of multi-variate solutions of Kolmogorov equations which arise in option pricing. Key technical devices are deep ReLU architectures capable of efficiently approximating tensor…
We consider the problem of approximation of density functions which is important in the theory of pricing of basket options. Our method is well adopted to the multidimensional case. Observe that implementations of polynomial and spline…
We present a novel method for the numerical pricing of American options based on Monte Carlo simulation and the optimization of exercise strategies. Previous solutions to this problem either explicitly or implicitly determine so-called…
The Black-Scholes Option pricing model (BSOPM) has long been in use for valuation of equity options to find the prices of stocks. In this work, using BSOPM, we have come up with a comparative analytical approach and numerical technique to…
This article is a sequel to [A.H.M.P]. In [A.H.M.P], we develop an explicit formula for pricing European options when the underlying stock price follows a non-linear stochastic delay equation with fixed delays in the drift and diffusion…
We develop a systematic derivation for the Limber approximation to the angular cross-power spectrum of two random fields, as a series expansion in 1/(\ell+1/2). This extended Limber approximation can be used to test the accuracy of the…
In financial mathematics, it is a typical approach to approximate financial markets operating in discrete time by continuous-time models such as the Black Scholes model. Fitting this model gives rise to difficulties due to the discrete…
For a large class of quickly mixing dynamical systems, we prove that the error in the almost sure approximation with a Brownian motion is of order O((log n)^a) with a $\ge$ 2. Specifically, we consider nonuniformly expanding maps with…
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…
We study the pricing and hedging of European spread options on correlated assets when, in contrast to the standard framework and consistent with imperfect liquidity markets, the trading in the stock market has a direct impact on stocks…
In common finance literature, Black-Scholes partial differential equation of option pricing is usually derived with no-arbitrage principle. Considering an asset market, Merton applied the Hamilton-Jacobi-Bellman techniques of his…
In this paper, we demonstrate that policy iteration, introduced in the context of HJB equations in [Forsyth & Labahn, 2007], is an extremely simple generic algorithm for solving linear complementarity problems resulting from the finite…
Set Cover is a classic NP-hard problem; as shown by Slav\'{i}k (1997) the greedy algorithm gives an approximation ratio of $\ln n - \ln \ln n + \Theta(1)$. A series of works by Lund \& Yannakakis (1994), Feige (1998), Moshkovitz (2015) have…
Black-Scholes (BS) is the standard mathematical model for option pricing in financial markets. Option prices are calculated using an analytical formula whose main inputs are strike (at which price to exercise) and volatility. The BS…
We derive a recursive formula for arithmetic Asian option prices with finite observation times in semimartingale models. The method is based on the relationship between the risk-neutral expectation of the quadratic variation of the return…
We re-visit the classical problem of optimal payment of dividends and determine the degree to which the diffusion approximation serves as a valid approximation of the classical risk model for this problem. Our results parallel some of those…
Mathematically, the execution of an American-style financial derivative is commonly reduced to solving an optimal stopping problem. Breaking the general assumption that the knowledge of the holder is restricted to the price history of the…