Related papers: Tail Option Pricing Under Power Laws
Asian option, as one of the path-dependent exotic options, is widely traded in the energy market, either for speculation or hedging. However, it is hard to price, especially the one with the arithmetic average price. The traditional trading…
The performance of trend following strategies can be ascribed to the difference between long-term and short-term realized variance. We revisit this general result and show that it holds for various definitions of trend strategies. This…
We suggest an original physical approach to describe the mechanism of market pricing. The core of our approach is to consider pricing at different time scales separately, using independent equations of motion. Such an approach leads to a…
Prices of European call options in a regime-switching local volatility model can be computed by solving a parabolic system which generalises the classical Black and Scholes equation, giving these prices as functionals of the local…
We examine random variables in the power law/regularly varying class with stochastic tail exponent, the exponent $\alpha$ having its own distribution. We show the effect of stochasticity of $\alpha$ on the expectation and higher moments of…
Recent years have seen an emerging class of structured financial products based on options linked to dynamic asset allocation strategies. One of the most chosen approach is the so-called target volatility mechanism. It shifts between risky…
In this paper we study the pricing of exchange options under a dynamic described by stochastic correlation with random jumps. In particular, we consider a Ornstein-Uhlenbeck covariance model with Levy Background Noise Process driven by…
We consider the robust pricing and hedging of American options in a continuous time setting. We assume asset prices are continuous semimartingales, but we allow for general model uncertainty specification via adapted closed convex…
We propose a method for pricing American options whose pay-off depends on the moving average of the underlying asset price. The method uses a finite dimensional approximation of the infinite-dimensional dynamics of the moving average…
We present a new numerical method to price vanilla options quickly in time-changed Brownian motion models. The method is based on rational function approximations of the Black-Scholes formula. Detailed numerical results are given for a…
The main objective of this paper is to present an algorithm of pricing perpetual American put options with asset-dependent discounting. The value function of such an instrument can be described as \begin{equation*}…
We consider model-free pricing of digital options, which pay out if the underlying asset has crossed both upper and lower barriers. We make only weak assumptions about the underlying process (typically continuity), but assume that the…
We develop a tractable framework for valuing Asian options when trading the underlying generates market impact and execution costs. Starting from a discrete-time, quote-level model, we construct a reference midpoint suitable for Asian…
The upper tail of a claim size distribution of a property line of business is frequently modelled by Pareto distribution. However, the upper tail does not need to be Pareto distributed, extraordinary shapes are possible. Here, the…
We propose a mean functional which exists for any probability distributions, and which characterizes the Pareto distribution within the set of distributions with finite left endpoint. This is in sharp contrast to the mean excess plot which…
Given a finite collection of stochastic alternatives, we study the problem of sequentially allocating a fixed sampling budget to identify the optimal alternative with a high probability, where the optimal alternative is defined as the one…
Option pricing formulas are derived from a non-Gaussian model of stock returns. Fluctuations are assumed to evolve according to a nonlinear Fokker-Planck equation which maximizes the Tsallis nonextensive entropy of index $q$. A generalized…
In econometrics, the Efficient Market Hypothesis posits that asset prices reflect all available information in the market. Several empirical investigations show that market efficiency drops when it undergoes extreme events. Many models for…
We introduce a general method for understanding the late time tail for solutions to wave equations on asymptotically flat spacetimes with odd space dimensions. In particular, for a large class of equations, we prove that the precise late…
We derive the tail inequalities between two random variables starting from inequalities between its moment, or more generally between its Lebesgue-Riesz norms, which holds true on certain sets of parameters. We consider some applications…