Related papers: Pricing index options by static hedging under fini…

In the context of an incomplete market with a Brownian filtration and a fixed finite time horizon, this paper proves that for general dynamic convex risk measures, the buyer's and seller's risk indifference prices of a contingent claim are…

We propose a model which can be jointly calibrated to the corporate bond term structure and equity option volatility surface of the same company. Our purpose is to obtain explicit bond and equity option pricing formulas that can be…

We solve the superhedging problem for European options in an illiquid extension of the Black-Scholes model, in which transactions have transient price impact and the costs and the strategies for hedging are affected by physical or cash…

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…

The purpose of this work is to explore the role that arbitrage opportunities play in pricing financial derivatives. We use a non-equilibrium model to set up a stochastic portfolio, and for the random arbitrage return, we choose a stationary…

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…

This paper considers exponential utility indifference pricing for a multidimensional non-traded assets model subject to inter-temporal default risk, and provides a semigroup approximation for the utility indifference price. The key tool is…

The collateral choice option allows a collateral-posting party the opportunity to change the type of security in which the collateral is deposited. Due to non-zero collateral basis spreads, this optionality significantly impacts asset…

In complete markets, there are risky assets and a riskless asset. It is assumed that the riskless asset and the risky asset are traded continuously in time and that the market is frictionless. In this paper, we propose a new method for…

This paper analyzes a problem of optimal static hedging using derivatives in incomplete markets. The investor is assumed to have a risk exposure to two underlying assets. The hedging instruments are vanilla options written on a single…

We derive a new high-order compact finite difference scheme for option pricing in stochastic volatility jump models, e.g. in Bates model. In such models the option price is determined as the solution of a partial integro-differential…

We study the upper hedging price for contingent claims in market models with strong types of arbitrage: increasing profit, strong arbitrage, and arbitrage of the first kind. The existence of arbitrage may make the price smaller than if it…

In this note, we develop stock option price approximations for a model which takes both the risk o default and the stochastic volatility into account. We also let the intensity of defaults be influenced by the volatility. We show that it…

In this chapter, we consider volatility swap, variance swap and VIX future pricing under different stochastic volatility models and jump diffusion models which are commonly used in financial market. We use convexity correction approximation…

It is well documented that a model for the underlying asset price process that seeks to capture the behaviour of the market prices of vanilla options needs to exhibit both diffusion and jump features. In this paper we assume that the asset…

This study introduces a new technique to recover the implicit discount factor in the derivative market using only European put and call prices: this discount is grounded in actual transactions in active markets. Moreover, this study…

We present a robust Deep Hedging framework for the pricing and hedging of option portfolios that significantly improves training efficiency and model robustness. In particular, we propose a neural model for training model embeddings which…

In this paper, we construct the utility-based optimal hedging strategy for a European-type option in the Almgren-Chriss model with temporary price impact. The main mathematical challenge of this work stems from the degeneracy of the second…

We consider model-free pricing of digital options, which pay out if the underlying asset has crossed both upper and lower barriers. We make only weak assumptions about the underlying process (typically continuity), but assume that the…

In this article, we investigate the behavior of long-term options. In many cases, option prices follow an exponential decay (or growth) rate for further maturity dates. We determine under what conditions option prices are characterized by…