Related papers: Change of Measure in Midcurve Pricing
The goal of this paper is to investigate how the marginal and dependence structures of a variety of multivariate L\'evy models affect calibration and pricing. To this aim, we study the approaches of Luciano and Semeraro (2010) and Ballotta…
We formulate a forward inflation index model with multi-factor volatility structure featuring a parametric form that allows calibration to correlations between indices of different tenors observed in the market. Assuming the nominal…
The paper Borovkova et al. [4] uses moment matching method to obtain closed form formulas for spread and basket call option prices under log normal models. In this note, we also use moment matching method to obtain semi-closed form formulas…
This papers addresses the stock option pricing problem in a continuous time market model where there are two stochastic tradable assets, and one of them is selected as a num\'eraire. It is shown that the presence of arbitrarily small…
We present a stochastic-local volatility model for derivative contracts on commodity futures able to describe forward-curve and smile dynamics with a fast calibration to liquid market quotes. A parsimonious parametrization is introduced to…
Based on forward curves modelled as Hilbert-space valued processes, we analyse the pricing of various options relevant in energy markets. In particular, we connect empirical evidence about energy forward prices known from the literature to…
In recent literature on eternal inflation, a number of measures have been introduced which attempt to assign probabilities to different pocket universes by counting the number of each type of pocket according to a specific procedure. We…
Using Malliavin Calculus techniques, we derive closed-form expressions for the at-the-money behaviour of the forward implied volatility, its skew and its curvature, in general Markovian stochastic volatility models with continuous paths.
We consider an HJM model setting for Markov-chain modulated forward rates. The underlying Markov chain is assumed to induce regime switches on the forward curve dynamics. Our primary focus is on the interest rate and energy futures markets.…
We provide a unifying treatment of pathwise moderate deviations for models commonly used in financial applications, and for related integrated functionals. Suitable scaling allows us to transfer these results into small-time, large-time and…
A new semi-analytical pricing model for Bermudan swaptions based on swap rates distributions and correlations between them. The model does not require product specific calibration.
In the framework of bilateral Gamma stock models we seek for adequate option pricing measures, which have an economic interpretation and allow numerical calculations of option prices. Our investigations encompass Esscher transforms, minimal…
In this paper we study the pricing of exchange options when underlying assets have stochastic volatility and stochastic correlation. An approximation using a closed-form approximation based on a Taylor expansion of the conditional price is…
We study hedging and pricing of unattainable contingent claims in a non-Markovian regime-switching financial model. Our financial market consists of a bank account and a risky asset whose dynamics are driven by a Brownian motion and a…
In this paper we show how to approximate a Heath-Jarrow-Morton dynamics for the forward prices in commodity markets with arbitrage-free models which have a finite dimensional state space. Moreover, we recover a closed form representation of…
Derivative traders are usually required to scan through hundreds, even thousands of possible trades on a daily basis. Up to now, not a single solution is available to aid in their job. Hence, this work aims to develop a trading…
In electricity markets, futures contracts typically function as a swap since they deliver the underlying over a period of time. In this paper, we introduce a market price for the delivery periods of electricity swaps, thereby opening an…
We find the variance-optimal equivalent martingale measure when multivariate assets are modeled by a regime-switching geometric Brownian motion, and the regimes are represented by a homogeneous continuous time Markov chain. Under this new…
Spot option prices, forwards and options on forwards relevant for the commodity markets are computed when the underlying process S is modelled as an exponential of a process {\xi} with memory as e.g. a L\'evy semi-stationary process.…
In this work, we consider the issue of pricing exchange options and spread options with stochastic interest rates. We provide the closed form solution for the exchange option price when interest rate is stochastic. Our result holds when…