Related papers: Option-based Equity Risk Premiums
Earlier studies have shown that stock market distributions can be well described by distributions derived from Tsallis entropy, which is a generalization of Shannon entropy to non-extensive systems. In this paper, Tsallis relative entropy…
We build on the work in Fackler and King 1990, and propose a more general calibration model for implied risk neutral densities. Our model allows for the joint calibration of a set of densities at different maturities and dates through a…
In this article, we present an approach which allows to take into account the effect of extreme values in the modeling of financial asset returns and in the valorisation of associeted options. Specifically, the marginal distribution of…
Confidence ellipsoids for linear regression coefficients are constructed by observations from a mixture with varying concentrations. Two approaches are discussed. The first one is the nonparametric approach based on the weighted least…
We price and replicate a variety of claims written on the log price $X$ and quadratic variation $[X]$ of a risky asset, modeled as a positive semimartingale, subject to stochastic volatility and jumps. The pricing and hedging formulas do…
To evaluate the calibration of a disease risk prediction tool, the quantity $E/O$, i.e., the ratio of the expected number of events to the observed number of events, is generally computed. However, because of censoring, or more precisely…
One the one hand, rough volatility has been shown to provide a consistent framework to capture the properties of stock price dynamics both under the historical measure and for pricing purposes. On the other hand, market price of volatility…
We derive a general multivariate theory for realised characteristics of `model-free discretisation-invariant swaps', so-called because the standard no-arbitrage assumption of martingale forward prices is sufficient to derive fair-value swap…
In a model with no given probability measure, we consider asset pricing in the presence of frictions and other imperfections and characterize the property of coherent pricing, a notion related to (but much weaker than) the no arbitrage…
I construct a Market Stress Probability Index (MSPI) that estimates the probability of high stress in the U.S. equity market one month ahead using information from the cross-section of individual stocks. Using CRSP daily data, each month is…
Typical risk classification procedure in insurance is consists of a priori risk classification determined by observable risk characteristics, and a posteriori risk classification where the premium is adjusted to reflect the policyholder's…
We propose and experimentally demonstrate an innovative stock index prediction method using a weighted optical reservoir computing system. We construct fundamental market data combined with macroeconomic data and technical indicators to…
In this paper, we examine the capacity of an arbitrage-free neural-SDE market model to produce realistic scenarios for the joint dynamics of multiple European options on a single underlying. We subsequently demonstrate its use as a risk…
We present an approach for pricing European call options in presence of proportional transaction costs, when the stock price follows a general exponential L\'{e}vy process. The model is a generalization of the celebrated work of Davis,…
In this work we present an analytical model, based on the path-integral formalism of Statistical Mechanics, for pricing options using first-passage time problems involving both fixed and deterministically moving absorbing barriers under…
We study the continuous-time pre-commitment mean-variance portfolio selection in a time-varying financial market. By introducing two indexes which respectively express the average profitability of the risky asset (AP) and the current…
A simple method is proposed to estimate the instantaneous correlations between state variables in a hybrid system from the empirical correlations between observable market quantities such as spot rate, stock price and implied volatility.…
We show how to price and replicate a variety of barrier-style claims written on the $\log$ price $X$ and quadratic variation $\langle X \rangle$ of a risky asset. Our framework assumes no arbitrage, frictionless markets and zero interest…
In this paper we introduce a simple continuous-time asset pricing framework, based on general multi-dimensional diffusion processes, that combines semi-analytic pricing with a nonlinear specification for the market price of risk. Our…
A representative investor generates realistic and complex security price paths by following this trading strategy: if, a few ticks ago, the market asset had two consecutive upticks or two consecutive downticks, then sell, and otherwise buy.…