Related papers: Option Pricing in an Investment Risk-Return Settin…
We consider the problem of optimal hedging in an incomplete market with an established pricing kernel. In such a market, prices are uniquely determined, but perfect hedges are usually not available. We work in the rather general setting of…
Options are contingent claims regarding the value of underlying assets. The Black-Scholes formula provides a road map for pricing these options in a risk-neutral setting, justified by a delta hedging argument in which countervailing…
We consider the jump-diffusion risky asset model and study its conditional prediction laws. Next, we explain the conditional least square hedging strategy and calculate its closed form for the jump-diffusion model, considering the…
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 paper, we propose an equilibrium pricing model in a dynamic multi-period stochastic framework with uncertain income streams. In an incomplete market, there exist two traded risky assets (e.g. stock/commodity and weather derivative)…
This paper investigates the pricing and hedging of variance swaps under a $3/2$ volatility model. Explicit pricing and hedging formulas of variance swaps are obtained under the benchmark approach, which only requires the existence of the…
Utility based methods provide a very general theoretically consistent approach to pricing and hedging of securities in incomplete financial markets. Solving problems in the utility based framework typically involves dynamic programming,…
In this paper new analytical and numerical approaches to valuating path-dependent options of European type have been developed. The model of stochastic volatility as a basic model has been chosen. For European options we could improve the…
We consider a two-way trading problem, where investors buy and sell a stock whose price moves within a certain range. Naturally they want to maximize their profit. Investors can perform up to $k$ trades, where each trade must involve the…
We propose a hybrid tree-finite difference method in order to approximate the Heston model. We prove the convergence by embedding the procedure in a bivariate Markov chain and we study the convergence of European and American option prices.…
We determine the variance-optimal hedge when the logarithm of the underlying price follows a process with stationary independent increments in discrete or continuous time. Although the general solution to this problem is known as backward…
This paper studies the optimal consumption under the addictive habit formation preference in markets with transaction costs and unbounded random endowments. To model the proportional transaction costs, we adopt the Kabanov's multi-asset…
In a market with one safe and one risky asset, an investor with a long horizon, constant investment opportunities, and constant relative risk aversion trades with small proportional transaction costs. We derive explicit formulas for the…
This paper studies dynamic asset allocation with interest rate risk and several sources of ambiguity. The market consists of a risk-free asset, a zero-coupon bond (both determined by a Vasicek model), and a stock. There is ambiguity about…
We present an algorithm producing a dynamic non-self-financing hedging strategy in an incomplete market corresponding to investor-relevant risk criterion. The optimization is a two stage process that first determines admissible model…
In this paper we study the pricing and hedging of structured products in energy markets, such as swing and virtual gas storage, using the exponential utility indifference pricing approach in a general incomplete multivariate market model…
We consider closed-form approximations for European put option prices within the Heston and GARCH diffusion stochastic volatility models with time-dependent parameters. Our methodology involves writing the put option price as an expectation…
In this work, we consider the optimal portfolio selection problem under hard constraints on trading amounts, transaction costs and different rates for borrowing and lending when the risky asset returns are serially correlated. No…
We model the price of a stock via a Lang\'{e}vin equation with multi-dimensional fluctuations coupled in the price and in time. We generalize previous models in that we assume that the fluctuations conditioned on the time step are compound…
We consider the hedging of European options when the price of the underlying asset follows a single-factor Markovian framework. By working in such a setting, Carr and Wu \cite{carr2014static} derived a spanning relation between a given…