Related papers: Classical Option Pricing and Some Steps Further
This paper studies the pricing problem in which the underlying asset follows a non-Markovian stochastic volatility model. Classical partial differential equation methods face significant challenges in this context, as the option prices…
We extend the application of the Cherny-Shiryaev-Yor invariance principle to a unified Bachelier-Black-Scholes-Merton (BBSM) dynamic pricing model. This extension incorporates the influence of the history of the dynamics (i.e., the path…
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…
In this paper, we propose an iterative splitting method to solve the partial differential equations in option pricing problems. We focus on the Heston stochastic volatility model and the derived two-dimensional partial differential equation…
A parsimonious generalization of the Heston model is proposed where the volatility-of-volatility is assumed to be stochastic. We follow the perturbation technique of Fouque et al (2011, CUP) to derive a first order approximation of the…
A market with asymmetric information can be viewed as a repeated exchange game between the informed sector and the uninformed one. In a market with risk-neutral agents, De Meyer [2010] proves that the price process should be a particular…
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…
In this paper, we consider option pricing in a framework of the fractional Heston-type model with $H>1/2$. As it is impossible to obtain an explicit formula for the expectation $\mathbb E f(S_T)$ in this case, where $S_T$ is the asset price…
This paper concerns a local volatility model in which volatility takes two possible values, and the specific value depends on whether the underlying price is above or below a given threshold value. The model is known, and a number of…
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 paper investigates the pricing of European-style lookback options when the price dynamics of the underlying risky asset are assumed to follow a Markov-modulated Geo-metric Brownian motion; that is, the appreciation rate and the…
Classical option pricing schemes assume that the value of a financial asset follows a geometric Brownian motion (GBM). However, a growing body of studies suggest that a simple GBM trajectory is not an adequate representation for asset…
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 develop quantum algorithms for pricing Asian and barrier options under the Heston model, a popular stochastic volatility model, and estimate their costs, in terms of T-count, T-depth and number of logical qubits, on instances under…
We develop a theoretical trading conditioning model subject to price volatility and return information in terms of market psychological behavior, based on analytical transaction volume-price probability wave distributions in which we use…
Option pricing in real markets faces fundamental challenges. The Black--Scholes--Merton (BSM) model assumes constant volatility and uses a linear generator $g(t,x,y,z)=-ry$, while lacking explicit behavioral factors, resulting in systematic…
We price European options in a class of models in which the volatility of the underlying risky asset depends on the short rate of interest. Our study results in an explicit pricing formula that depends on knowledge of a characteristic…
We investigate the use of the normalized imbalance between option volumes corresponding to positive and negative market views, as a predictor for directional price movements in the spot market. Via a nonlinear analysis, and using a…
We consider the infinite dimensional Heston stochastic volatility model proposed in \arXiv:1706:03500. The price of a forward contract on a non-storable commodity is modelled by a generalized Ornstein-Uhlenbeck process in the Filipovi\'{c}…
We investigate qualitative and quantitative behavior of a solution of the mathematical model for pricing American style of perpetual put options. We assume the option price is a solution to the stationary generalized Black-Scholes equation…