Related papers: A Put-Call Transformation of the Exchange Option P…
Model risk arises from the misspecification of probabilistic models used for pricing and hedging derivatives. While model risk for European-style claims has been widely studied, much less attention has been given to American-style…
In this paper, we obtain sharp asymptotic formulas with error estimates for the Mellin convolution of functions, and use these formulas to characterize the asymptotic behavior of marginal distribution densities of stock price processes in…
This paper considers a portfolio optimization problem in which asset prices are represented by SDEs driven by Brownian motion and a Poisson random measure, with drifts that are functions of an auxiliary diffusion 'factor' process. The…
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…
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 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…
A homogeneously saturated equation for the time development of the price of a financial asset is presented and investigated for the pricing of European call options using noise that is distributed as a Student's t-distribution. In the limit…
We consider robust pricing and hedging for options written on multiple assets given market option prices for the individual assets. The resulting problem is called the multi-marginal martingale optimal transport problem. We propose two…
We construct a sequence of functions that uniformly converge (on compact sets) to the price of Asian option, which is written on a stock whose dynamics follows a jump diffusion, exponentially fast. Each of the element in this sequence…
The Barndorff-Nielsen and Shephard model is a representative jump-type stochastic volatility model. Still, no method exists to compute option prices numerically for the non-martingale case with infinite active jumps. We develop two…
We model continuous-time information flows generated by a number of information sources that switch on and off at random times. By modulating a multi-dimensional L\'evy random bridge over a random point field, our framework relates the…
We derive the Black-Scholes-Merton dual equation, which has exactly the same form as the Black-Scholes-Merton equation. The novel and general equation works for options with a payoff of homogeneous of degree one, including European,…
We study optimal stopping problems related to the pricing of perpetual American options in an extension of the Black-Merton-Scholes model in which the dividend and volatility rates of the underlying risky asset depend on the running values…
A general method to construct recombinant tree approximations for stochastic volatility models is developed and applied to the Heston model for stock price dynamics. In this application, the resulting approximation is a four tuple Markov…
In this paper we generalize and analyze the model for pricing American-style Asian options due to (Hansen and Jorgensen 2000) by including a continuous dividend rate $q$ and a general method of averaging of the floating strike. We focus on…
The proposed model modifies option pricing formulas for the basic case of log-normal probability distribution providing correspondence to formulated criteria of efficiency and completeness. The model is self-calibrating by historic…
Stochastic volatility models based on Gaussian processes, like fractional Brownian motion, are able to reproduce important stylized facts of financial markets such as rich autocorrelation structures, persistence and roughness of sample…
We perform a detailed comparison between a Markov Switching Jump Diffusion Model and a Markov Switching {\alpha}-Stable Distribution Model with respect to the analysis of non-stationary data. We show that the jump diffusion model is…
It is well known that in models with time-homogeneous local volatility functions and constant interest and dividend rates, the European Put prices are transformed into European Call prices by the simultaneous exchanges of the interest and…
The paper Borovkova et al. [4] uses moment matching method to obtain closed form formulas for spread and basket call option prices under log normal models. In this note, we also use moment matching method to obtain semi-closed form formulas…