Related papers: Capturing the power options smile by an additive t…
In this paper, we propose an iterative splitting method to solve the partial differential equations in option pricing problems. We focus on the Heston stochastic volatility model and the derived two-dimensional partial differential equation…
We consider option pricing using a discrete-time Markov switching stochastic volatility with co-jump model, which can model volatility clustering and varying mean-reversion speeds of volatility. For pricing European options, we develop a…
We derive a small-time expansion for out-of-the-money call options under an exponential Levy model, using the small-time expansion for the distribution function given in Figueroa-Lopez & Houdre (2009), combined with a change of num\'eraire…
Financial markets based on L\'evy processes are typically incomplete and option prices depend on risk attitudes of individual agents. In this context, the notion of utility indifference price has gained popularity in the academic circles.…
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…
We derive explicit valuation formulae for an exotic path-dependent interest rate derivative, namely an option on the composition of LIBOR rates. The formulae are based on Fourier transform methods for option pricing. We consider two models…
We derive an extremal fractional Gaussian by employing the L\'evy-Khintchine theorem and L\'evian noise. With the fractional Gaussian we then generalize the Black-Scholes-Merton option-pricing formula. We obtain an easily applicable and…
One method to compute the price of an arithmetic Asian option in a Levy driven model is based on the exponential functional of the underlying Levy process: If we know the distribution of the exponential functional, we can calculate the…
In this paper we propose a novel pricing-hedging framework for volatility derivatives which simultaneously takes into account rough volatility and volatility jumps. Our model directly targets the instantaneous variance of a risky asset and…
We extend the Lindquist-Rachev (LR) option-pricing framework--which values derivatives in markets lacking a traded risk-free bond--by introducing common Levy jump dynamics across two risky assets. The resulting endogenous "shadow" short…
We consider a non-Gaussian option pricing model, into which the underlying log-price is assumed to be driven by an $\alpha$-stable distribution. We remove the a priori divergence of the model by introducing a Mellin regularization for the…
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…
The liberalization of electricity markets and the development of renewable energy sources has led to new challenges for decision makers. These challenges are accompanied by an increasing uncertainty about future electricity price movements.…
The recent liberalization of the electricity and gas markets has resulted in the growth of energy exchanges and modelling problems. In this paper, we modelize jointly gas and electricity spot prices using a mean-reverting model which fits…
Recent empirical studies suggest that the volatility of an underlying price process may have correlations that decay slowly under certain market conditions. In this paper, the volatility is modeled as a stationary process with long-range…
The continuous observation of the financial markets has identified some stylized facts which challenge the conventional assumptions, promoting the born of new approaches. On the one hand, the long-range dependence has been faced replacing…
In this article we develop an explicit formula for pricing European options when the underlying stock price follows a non-linear stochastic differential delay equation (sdde). We believe that the proposed model is sufficiently flexible to…
This article is a sequel to [A.H.M.P]. In [A.H.M.P], we develop an explicit formula for pricing European options when the underlying stock price follows a non-linear stochastic delay equation with fixed delays in the drift and diffusion…
We obtain option pricing formulas for stock price models in which the drift and volatility terms are functionals of a continuous history of the stock prices. That is, the stock dynamics follows a nonlinear stochastic functional differential…
The accurate prediction of short-term electricity prices is vital for effective trading strategies, power plant scheduling, profit maximisation and efficient system operation. However, uncertainties in supply and demand make such…