Related papers: A new approach for American option pricing: The Dy…
The challenge to measure exposures regularly forces financial institutions into a choice between an overwhelming computational burden or oversimplification of risk. To resolve this unsettling dilemma, we systematically investigate replacing…
We propose an innovative data-driven option pricing methodology that relies exclusively on the dataset of historical underlying asset prices. While the dataset is rooted in the objective world, option prices are commonly expressed as…
Approximation theorem is one of the most important aspects of numerical analysis that has evolved over the years with many different approaches. Some of the most popular approximation methods include the Lebesgue approximation theorem, the…
We present a path integral method to derive closed-form solutions for option prices in a stochastic volatility model. The method is explained in detail for the pricing of a plain vanilla option. The flexibility of our approach is…
We propose a novel Black-Scholes model under which the stock price processes are modeled by stochastic differential equations driven by sub-diffusions. The new framework can capture the less financial activity phenomenon during the bear…
The subject of the present study is the Monte Carlo path-integral evaluation of the moments of spectral functions. Such moments can be computed by formal differentiation of certain estimating functionals that are infinitely-differentiable…
We introduce an algorithm for the pricing of finite expiry American options driven by L\'evy processes. The idea is to tweak Carr's `Canadisation' method, cf. Carr [9] (see also Bouchard et al [5]), in such a way that the adjusted algorithm…
In this paper we consider the pricing of options on interest rates such as caplets and swaptions in the L\'evy Libor model developed by Eberlein and \"Ozkan (2005). This model is an extension to L\'evy driving processes of the classical…
We investigate methods for pricing American options under the variance gamma model. The variance gamma process is a pure jump process which is constructed by replacing the calendar time by the gamma time in a Brownian motion with drift,…
We present an approach for pricing European call options in presence of proportional transaction costs, when the stock price follows a general exponential L\'{e}vy process. The model is a generalization of the celebrated work of Davis,…
Following the foundational work of the Black--Scholes model, extensive research has been developed to price the option by addressing its underlying assumptions and associated pricing biases. This study introduces a novel framework for…
In this paper, we present a novel approach to solving the American put options pricing model by hugely relying on a front-fixing Crank-Nicolson finite difference method. Since the American put option pricing model is a widely used financial…
In the following paper we provide a review and development of sequential Monte Carlo (SMC) methods for option pricing. SMC are a class of Monte Carlo-based algorithms, that are designed to approximate expectations w.r.t a sequence of…
Binomial tree methods (BTM) and explicit difference schemes (EDS) for the variational inequality model of American options with time dependent coefficients are studied. When volatility is time dependent, it is not reasonable to assume that…
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…
In this paper, we price American-style Parisian down-and-in call options under the Black-Scholes framework. Usually, pricing an American-style option is much more difficult than pricing its European-style counterpart because of the…
The present article revisits the Diffusion Operator Integral (DOI) variance reduction technique originally proposed in Heath and Platen (2002) and extends its theoretical concept to the pricing of American-style options under…
This paper deals with the numerical approximation of American-style option values governed by partial differential complementarity problems. For a variety of one- and two-asset American options we investigate by ample numerical experiments…
Pricing options is an important problem in financial engineering. In many scenarios of practical interest, financial option prices associated to an underlying asset reduces to computing an expectation w.r.t.~a diffusion process. In general,…
Consider a discrete finite-dimensional, Markovian market model. In this setting, discretely sampled American options can be priced using the so-called ``non-recombining'' tree algorithm. By successively increasing the number of exercise…