Related papers: Pricing Exchange Options under Stochastic Correlat…
We derive the short-maturity asymptotics for prices of options on realized variance in local-stochastic volatility models. We consider separately the short-maturity asymptotics for out-of-the-money and in-the-money options cases. The…
We show that the frequent claim that the implied tree prices exotic options consistently with the market is untrue if the local volatilities are subject to change and the market is arbitrage-free. In the process, we analyse -- in the most…
In this paper we analyse financial implications of exchangeability and similar properties of finite dimensional random vectors. We show how these properties are reflected in prices of some basket options in view of the well-known put-call…
We compare the option pricing formulas of Louis Bachelier and Black-Merton-Scholes and observe -- theoretically as well as for Bachelier's original data -- that the prices coincide very well. We illustrate Louis Bachelier's efforts to…
A new approximate Bayesian inferential framework is proposed that exploits multiple information sources -- daily spot returns, high-frequency spot data and option prices -- and enables fast calculation of probabilistic predictions of future…
Reliability Options are capacity remuneration mechanisms aimed at enhancing security of supply in electricity systems. They can be framed as call options on electricity sold by power producers to System Operators. This paper provides a…
This paper presents a multinomial method for option pricing when the underlying asset follows an exponential Variance Gamma process. The continuous time Variance Gamma process is approximated by a discrete time Markov chain with the same…
In this work we present a general representation formula for the price of a vulnerable European option, and the related CVA in stochastic (either rough or not) volatility models for the underlying's price, when admitting correlation with…
The present paper proposes a new framework for describing the stock price dynamics. In the traditional geometric Brownian motion model and its variants, volatility plays a vital role. The modern studies of asset pricing expand around…
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*}…
The purpose of this paper is to analyze the problem of option pricing when the short rate follows subdiffusive fractional Merton model. We incorporate the stochastic nature of the short rate in our option valuation model and derive explicit…
The aim of this article is to provide a systematic analysis of the conditions such that Fourier transform valuation formulas are valid in a general framework; i.e. when the option has an arbitrary payoff function and depends on the path of…
We present closed analytical approximations for the pricing of Asian basket spread options under the Black-Scholes model. The formulae are obtained by using a stochastic Taylor expansion around a log-normal proxy model and are found to be…
It has been recently shown that spot volatilities can be very well modeled by rough stochastic volatility type dynamics. In such models, the log-volatility follows a fractional Brownian motion with Hurst parameter smaller than 1/2. This…
This follow-up article analyzes the impact of foreign exchange option interpolation on the vanilla option implied volatilities. In particular different exact interpolations of broker quotes may lead to different implied volatilities at the…
Advertisement (abbreviated ad) options are a recent development in online advertising. Simply, an ad option is a first look contract in which a publisher or search engine grants an advertiser a right but not obligation to enter into…
We present an alternative formula to price European options through cosine series expansions, under models with a known characteristic function such as the Heston stochastic volatility model. It is more robust across strikes and as fast as…
The latter author, together with collaborators, proposed a numerical scheme to calculate the price of barrier options. The scheme is based on a symmetrization of diffusion process. The present paper aims to give a mathematical credit to the…
In earlier studies, the estimation of the volatility of a stock using information on the daily opening, closing, high and low prices has been developed; the additional information in the high and low prices can be incorporated to produce…
This paper proposes a hybrid credit risk model, in closed form, to price vulnerable options with stochastic volatility. The distinctive features of the model are threefold. First, both the underlying and the option issuer's assets follow…