Related papers: Option Pricing with Mixed Levy Subordinated Price …
Bilateral markets, such as those for government bonds, involve decentralized and opaque transactions between market makers (MMs) and clients, posing significant challenges for traditional modeling approaches. To address these complexities,…
This paper studies the valuation of a class of default swaps with the embedded option to switch to a different premium and notional principal anytime prior to a credit event. These are early exercisable contracts that give the protection…
We develop a behavioral model for liquidity and volatility based on empirical regularities in trading order flow in the London Stock Exchange. This can be viewed as a very simple agent based model in which all components of the model are…
One approach to the analysis of stochastic fluctuations in market prices is to model characteristics of investor behaviour and the complex interactions between market participants, with the aim of extracting consequences in the aggregate.…
In this paper we propose a general derivative pricing framework which employs decoupled time-changed (DTC) L\'evy processes to model the underlying asset of contingent claims. A DTC L\'evy process is a generalized time-changed L\'evy…
We study an American option pricing problem with liquidity risks and transaction fees. As endogenous transaction costs, liquidity risks of the underlying asset are modeled by a mean-reverting process. Transaction fees are exogenous…
We introduce the Local Occupied Volatility (LOV) model that sits between Dupire's local volatility and fully path-dependent dynamics. By design, the LOV model ensures automatic calibration to European vanilla options, while offering the…
This paper presents a method for incorporating risk aversion into existing decision tree models used in economic evaluations. The method involves applying a probability weighting function based on rank dependent utility theory to reduced…
The paper presents two new approaches to modeling the interaction of small and medium pricetaking traders with a stock exchange. In the framework of these approaches, the traders can form and manage their portfolios of financial instruments…
It is a challenging task to predict financial markets. The complexity of this task is mainly due to the interaction between financial markets and market participants, who are not able to keep rational all the time, and often affected by…
Positive feedback trading, which buys when prices rise and sells when prices fall, has long been criticized for being destabilizing as it moves prices away from the fundamentals. Motivated by the relationship between positive feedback…
In this paper we develop a novel neural network model for predicting implied volatility surface. Prior financial domain knowledge is taken into account. A new activation function that incorporates volatility smile is proposed, which is used…
Using a Levy process we generalize formulas in Bo et al.(2010) for the Esscher transform parameters for the log-normal distribution which ensure the martingale condition holds for the discounted foreign exchange rate. Using these values of…
With the rapid development of big data and computing devices, low-latency automatic trading platforms based on real-time information acquisition have become the main components of the stock trading market, so the topic of quantitative…
American options are studied in a general discrete market in the presence of proportional transaction costs, modelled as bid-ask spreads. Pricing algorithms and constructions of hedging strategies, stopping times and martingale…
Building on a prominent agent-based model, we present a new structural stochastic volatility asset pricing model of fundamentalists vs. chartists where the prices are determined based on excess demand. Specifically, this allows for…
In this note, we develop stock option price approximations for a model which takes both the risk o default and the stochastic volatility into account. We also let the intensity of defaults be influenced by the volatility. We show that it…
Option prices encode the market's collective outlook through implied density and implied volatility. An explicit link between implied density and implied volatility translates the risk-neutrality of the former into conditions on the latter…
Electricity markets are experiencing a rapid increase in energy storage unit participation. Unlike conventional generation resources, quantifying the competitive operation and identifying if a storage unit is exercising market power is…
Most people are risk-averse (risk-seeking) when they expect to gain (lose). Based on a generalization of ``expected utility theory'' which takes this into account, we introduce an automaton mimicking the dynamics of economic operations.…