Related papers: Derivation of non-classical stochastic price dynam…
In this paper, we consider the problem of pricing discretely-sampled variance swaps based on a hybrid model of stochastic volatility and stochastic interest rate with regime-switching. Our modelling framework extends the Heston stochastic…
In performative prediction, the choice of a model influences the distribution of future data, typically through actions taken based on the model's predictions. We initiate the study of stochastic optimization for performative prediction.…
In this survey paper we discuss recent advances on short interest rate models which can be formulated in terms of a stochastic differential equation for the instantaneous interest rate (also called short rate) or a system of such equations…
This paper describes asset price and return disturbances as result of relations between transactions and multiple kinds of expectations. We show that disturbances of expectations can cause fluctuations of trade volume, price and return. We…
For a linear combination of random variables, fix some confidence level and consider the quantile of the combination at this level. We are interested in the partial derivatives of the quantile with respect to the weights of the random…
Based on a criterium of mathematical simplicity and consistency with empirical market data, a stochastic volatility model has been obtained with the volatility process driven by fractional noise. Depending on whether the stochasticity…
We demonstrate that the processes underlying on-line auction price bids and many other longitudinal data can be represented by an empirical first order stochastic ordinary differential equation with time-varying coefficients and a smooth…
We propose a model where a producer and a consumer can affect the price dynamics of some commodity controlling drift and volatility of, respectively, the production rate and the consumption rate. We assume that the producer has a short…
The volatility characterizes the amplitude of price return fluctuations. It is a central magnitude in finance closely related to the risk of holding a certain asset. Despite its popularity on trading floors, the volatility is unobservable…
We develop a new identification strategy for demand estimation when cost shifters may not be available and there are substantial variations in demand over time. This approaches relies on a kind of nonlinear difference-in-differences, in…
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…
We consider a sequential decision making process, such as renewable energy trading or electrical production scheduling, whose outcome depends on the future realization of a random factor, such as a meteorological variable. We assume that…
The statistical description and modeling of volatility plays a prominent role in econometrics, risk management and finance. GARCH and stochastic volatility models have been extensively studied and are routinely fitted to market data, albeit…
While the investors' responses to price changes and their price forecasts are well accepted major factors contributing to large price fluctuations in financial markets, our study shows that investors' heterogeneous and dynamic risk aversion…
We propose a method for extending a given asset pricing formula to account for two additional sources of risk: the risk associated with future changes in market--calibrated parameters and the remaining risk associated with idiosyncratic…
Recent empirical evidence has highlighted the crucial role of jumps in both price and volatility within the cryptocurrency market. In this paper, we integrate price--volatility co-jumps and volatility short-term dependency into a coherent…
Many studies assume stock prices follow a random process known as geometric Brownian motion. Although approximately correct, this model fails to explain the frequent occurrence of extreme price movements, such as stock market crashes. Using…
In this paper we investigate a dynamic pricing model for constant demand elasticity where customers have a probability distribution on the number of items they order. This is a generalization from standard models which restrict customers to…
Jumps and market microstructure noise are stylized features of high-frequency financial data. It is well known that they introduce bias in the estimation of volatility (including integrated and spot volatilities) of assets, and many methods…
Perpetual American options are financial instruments that can be readily exercised and do not mature. In this paper we study in detail the problem of pricing this kind of derivatives, for the most popular flavour, within a framework in…