Related papers: Option Pricing in Illiquid Markets with Jumps
This paper studies pricing derivatives in an age-dependent semi-Markov modulated market. We consider a financial market where the asset price dynamics follow a regime switching geometric Brownian motion model in which the coefficients…
Our goal is to analyze the system of Hamilton-Jacobi-Bellman equations arising in derivative securities pricing models. The European style of an option price is constructed as a difference of the certainty equivalents to the value functions…
This work addresses the problem of optimal pricing and hedging of a European option on an illiquid asset Z using two proxies: a liquid asset S and a liquid European option on another liquid asset Y. We assume that the S-hedge is dynamic…
We consider fractional Black-Scholes market with proportional transaction costs. When transaction costs are present, one trades periodically i.e. we have the discrete trading with equidistance $n^{-1}$ between trading times. We derive a non…
In this paper, we propose and study a novel continuous-time model, based on the well-known constant elasticity of variance (CEV) model, to describe the asset price process. The basic idea is that the volatility elasticity of the CEV model…
In this note, Black--Scholes implied volatility is expressed in terms of various optimisation problems. From these representations, upper and lower bounds are derived which hold uniformly across moneyness and call price. Various symmetries…
In this paper we focus on the subdiffusive Black Scholes model. The main part of our work consists of the finite difference method as a numerical approach to the option pricing in the considered model. We derive the governing fractional…
In this paper, we study the asymptotic behavior of Asian option prices in the worst case scenario under an uncertain volatility model. We give a procedure to approximate the Asian option prices with a small volatility interval. By imposing…
In this paper we investigate general linear stochastic volatility models with correlated Brownian noises. In such models the asset price satisfies a linear SDE with coefficient of linearity being the volatility process. This class contains…
There is vast empirical evidence that given a set of assumptions on the real-world dynamics of an asset, the European options on this asset are not efficiently priced in options markets, giving rise to arbitrage opportunities. We study…
This paper investigates analytic properties of American option prices under the finite moment log-stable (FMLS) model. Under this model the price of American options is characterised by the free boundary problem of a fractional partial…
This article proposes a calibration framework for complex option pricing models that jointly fits market option prices and the term structure of variance. Calibrated models under the conventional objective function, the sum of squared…
The key objective of this paper is to develop an empirical model for pricing SPX options that can be simulated over future paths of the SPX. To accomplish this, we formulate and rigorously evaluate several statistical models, including…
We consider the pricing of derivatives in a setting with trading restrictions, but without any probabilistic assumptions on the underlying model, in discrete and continuous time. In particular, we assume that European put or call options…
In this paper an arbitrage strategy is constructed for the modified Black-Scholes model driven by fractional Brownian motion or by a time changed fractional Brownian motion, when the volatility is stochastic. This latter property allows the…
We apply Gauge Theory of Arbitrage (GTA) {hep-th/9710148} to derivative pricing. We show how the standard results of Black-Scholes analysis appear from GTA and derive correction to the Black-Scholes equation due to a virtual arbitrage and…
We develop an entropic framework to model the dynamics of stocks and European Options. Entropic inference is an inductive inference framework equipped with proper tools to handle situations where incomplete information is available. The…
In this paper we propose a semi-analytic approach to pricing American options for time-dependent jump-diffusions models with exponential jumps The idea of the method is to further generalize our approach developed for pricing barrier,…
We reconsider the problem of option pricing using historical probability distributions. We first discuss how the risk-minimisation scheme proposed recently is an adequate starting point under the realistic assumption that price increments…
In the paper written by Klibanov et al, it proposes a novel method to calculate implied volatility of a European stock options as a solution to ill-posed inverse problem for the Black-Scholes equation. In addition, it proposes a trading…