Related papers: Asset Price Bubbles: An Option-based Indicator

Asset price bubbles are situations where asset prices exceed the fundamental values defined by the present value of dividends. This paper presents a conceptually new perspective: the necessity of bubbles. We establish the Bubble Necessity…

We consider the pricing of derivatives written on the discretely sampled realized variance of an underlying security. In the literature, the realized variance is usually approximated by its continuous-time limit, the quadratic variation of…

This work presents an asset pricing model that under rational expectation equilibrium perspective shows how, depending on risk aversion and noise volatility, a risky-asset has one equilibrium price that differs in term of efficiency: an…

We present a heuristic argument for the propensity of Topological Data Analysis (TDA) to detect early warning signals of critical transitions in financial time series. Our argument is based on the Log-Periodic Power Law Singularity (LPPLS)…

We tested 45 indices and common stocks traded in the South African stock market for the possible existence of a bubble over the period from Jan. 2003 to May 2006. A bubble is defined by a faster-than-exponential acceleration with…

This paper considers the pricing of long-term options on assets such as housing, where either government intervention or the economic nature of the asset is assumed to limit large falls in prices. The observed asset price is modelled by a…

Based on empirical market data, a stochastic volatility model is proposed with volatility driven by fractional noise. The model is used to obtain a risk-neutrality option pricing formula and an option pricing equation.

This study investigates the short-term asymptotic behavior of the implied volatility surface (IVS), with a particular focus on the at-the-money (ATM) skew and curvature, which are key determinants of the IVS shape and whose are widely…

We study convexity and monotonicity properties of option prices in a model with jumps using the fact that these prices satisfy certain parabolic integro-differential equations. Conditions are provided under which preservation of convexity…

An efficient conditioning technique, the so-called Brownian Bridge simulation, has previously been applied to eliminate pricing bias that arises in applications of the standard discrete-time Monte Carlo method to evaluate options written on…

This study delves into the intricate realm of risk evaluation within the domain of specific financial derivatives, notably options. Unlike other financial instruments, like bonds, options are susceptible to broader risks. A distinctive…

We develop a behavioral model for liquidity and volatility based on empirical regularities in trading order flow in the London Stock Exchange. This can be viewed as a very simple agent based model in which all components of the model are…

The paper proposes a class of financial market models which are based on inhomogeneous telegraph processes and jump diffusions with alternating volatilities. It is assumed that the jumps occur when the tendencies and volatilities are…

In Part II of this paper, we concentrate our analysis on the price dynamical model with the moving average rules developed in Part I of this paper. By decomposing the excessive demand function, we reveal that it is the interplay between…

In this paper, we first investigate the estimation of the empirical joint Laplace transform of volatilities of two semi-martingales within a fixed time interval [0, T] by using overlapped increments of high-frequency data. The proposed…

A well-interpretable measure of information has been recently proposed based on a partition obtained by intersecting a random sequence with its moving average. The partition yields disjoint sets of the sequence, which are then ranked…

We model the logarithm of the price (log-price) of a financial asset as a random variable obtained by projecting an operator stable random vector with a scaling index matrix $\underline{\underline{E}}$ onto a non-random vector. The scaling…

Providing a measure of market risk is an important issue for investors and financial institutions. However, the existing models for this purpose are per definition symmetric. The current paper introduces an asymmetric capital asset pricing…

Using machine learning and alternative data for the prediction of financial markets has been a popular topic in recent years. Many financial variables such as stock price, historical volatility and trade volume have already been through…

We present an interacting-agent model of speculative activity explaining bubbles and crashes in stock markets. We describe stock markets through an infinite-range Ising model to formulate the tendency of traders getting influenced by the…