Related papers: Numerical method for model-free pricing of exotic …
This paper performs the numerical analysis and the computation of a Spread option in a market with imperfect liquidity. The number of shares traded in the stock market has a direct impact on the stock's price. Thus, we consider a…
In this article we introduce a portfolio optimisation framework, in which the use of rough path signatures (Lyons, 1998) provides a novel method of incorporating path-dependencies in the joint signal-asset dynamics, naturally extending…
In this paper, we provide a model-independent extension of the paradigm of dynamic hedging of derivative claims. We relate model-independent replication strategies to local martingales having a closed form which we can characterise via…
Employing probabilistic techniques we compute best possible upper and lower bounds on the price of an option on one or two assets with continuous piecewise linear payoff function based on prices of simple call options of possibly distinct…
In this paper we study dynamic pricing mechanisms of financial derivatives. A typical model of such pricing mechanism is the so-called g--expectation defined by solutions of a backward stochastic differential equation with g as its…
Using classical Taylor series techniques, we develop a unified approach to pricing and implied volatility for European-style options in a general local-stochastic volatility setting. Our price approximations require only a normal CDF and…
In this paper we present a theoretical framework for determining dynamic ask and bid prices of derivatives using the theory of dynamic coherent acceptability indices in discrete time. We prove a version of the First Fundamental Theorem of…
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…
Risk-neutral pricing dictates that the discounted derivative price is a martingale in a measure equivalent to the economic measure. The residual ambiguity for incomplete markets is here resolved by minimising the entropy of the price…
One of the shortcomings of the Black and Scholes model on option pricing is the assumption that trading of the underlying asset does not affect the price of that asset. This assumption can be fulfilled only in perfectly liquid markets.…
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…
Accurately forecasting the price of oil, the world's most actively traded commodity, is of great importance to both academics and practitioners. We contribute by proposing a functional time series based method to model and forecast oil…
Weighted Monte Carlo prices exotic options calibrating the probabilities of previously generated paths by a regular Monte Carlo to fit a set of option premiums. When only vanilla call and put options and forward prices are considered, the…
We consider stochastic volatility models under parameter uncertainty and investigate how model derived prices of European options are affected. We let the pricing parameters evolve dynamically in time within a specified region, and…
We consider the pricing and hedging of exotic options in a model-independent set-up using \emph{shortfall risk and quantiles}. We assume that the marginal distributions at certain times are given. This is tantamount to calibrating the model…
We propose a parameter-free model for estimating the price or valuation of financial derivatives like options, forwards and futures using non-supervised learning networks and Monte Carlo. Although some arbitrage-based pricing formula…
A derivative is a financial security whose value is a function of underlying traded assets and market outcomes. Pricing a financial derivative involves setting up a market model, finding a martingale (``fair game") probability measure for…
Some expansion methods have been proposed for approximately pricing options which has no exact closed formula. Benhamou et al. (2010) presents the smart expansion method that directly expands the expectation value of payoff function with…
The approach that allows find European option price on the assumption of hedging at discrete times is proposed. The routine allows find the option price not for lognormal distribution functions of underlying asset only but for wide enough…
We provide a lean, non-technical exposition on the pricing of path-dependent and European-style derivatives in the Cox-Ross-Rubinstein (CRR) pricing model. The main tool used in the paper for cleaning up the reasoning is applying static…