Related papers: Pricing with Variance Gamma Information
We describe an agent-based simulation of a fictional (but feasible) information trading business. The Gas Price Information Trader (GPIT) buys information about real-time gas prices in a metropolitan area from drivers and resells the…
We propose an artificial market model based on deterministic agents. The agents modify their ask/bid price depending on past price changes. The temporal development of market price fluctuations is calculated numerically. A probability…
We provide closed-form market equilibrium formula consolidating informational imperfections and investors beliefs. Based on Merton's model, we characterize the equilibrium expected excess returns vector with incomplete information. We then…
We present a model of financial markets originally proposed for a turbulent flow, as a dynamic basis of its intermittent behavior. Time evolution of the price change is assumed to be described by Brownian motion in a power-law potential,…
Recent empirical studies suggest that the volatility of an underlying price process may have correlations that decay slowly under certain market conditions. In this paper, the volatility is modeled as a stationary process with long-range…
This article prices OTC derivatives with either an exogenously determined initial margin profile or endogenously approximated initial margin. In the former case, margin valuation adjustment (MVA) is defined as the liability-side discounted…
The main result of this paper is a collateralized counterparty valuation adjusted pricing equation, which allows to price a deal while taking into account credit and debit valuation adjustments (CVA, DVA) along with margining and funding…
Starting from the Avellaneda-Stoikov framework, we consider a market maker who wants to optimally set bid/ask quotes over a finite time horizon, to maximize her expected utility. The intensities of the orders she receives depend not only on…
The growth of machine-readable data in finance, such as alternative data, requires new modeling techniques that can handle non-stationary and non-parametric data. Due to the underlying causal dependence and the size and complexity of the…
We describe a model of a communication network that allows us to price complex network services as financial derivative contracts based on the spot price of the capacity in individual routers. We prove a theorem of a Girsanov transform that…
In this paper, we introduce a parametrized family of prices derived from the Maximum Entropy Principle. The price is obtained from the distribution that minimizes bias, given the bid and ask volume imbalance at the top of the order book.…
A new framework for pricing the European currency option is developed in the case where the spot exchange rate fellows a time-changed fractional Brownian motion. An analytic formula for pricing European foreign currency option is proposed…
While stochastic variational inference is relatively well known for scaling inference in Bayesian probabilistic models, related methods also offer ways to circumnavigate the approximation of analytically intractable expectations. The key…
Using a suitable change of probability measure, we obtain a novel Poisson series representation for the arbitrage- free price process of vulnerable contingent claims in a regime-switching market driven by an underlying continuous- time…
The robust option pricing problem is to find upper and lower bounds on fair prices of financial claims using only the most minimal assumptions. It contrasts with the classical, model-based approach and gained prominence in the wake of the…
This paper motivates the use of random-bridges -- stochastic processes conditioned to take target distributions at fixed timepoints -- in the realm of generative modelling. Herein, random-bridges can act as stochastic transports between two…
This paper develops a new methodology for studying continuous-time Nash equilibrium in a financial market with asymmetrically informed agents. This approach allows us to lift the restriction of risk neutrality imposed on market makers by…
We show how spectral filters can improve the convergence of numerical schemes which use discrete Hilbert transforms based on a sinc function expansion, and thus ultimately on the fast Fourier transform. This is relevant, for example, for…
In societal-scale infrastructures, such as electric grids or transportation networks, pricing mechanisms are often used as a way to shape users' demand in order to lower operating costs and improve reliability. Existing approaches to…
It is well documented that a model for the underlying asset price process that seeks to capture the behaviour of the market prices of vanilla options needs to exhibit both diffusion and jump features. In this paper we assume that the asset…