Related papers: Rational Finance Approach to Behavioral Option Pri…

Option pricing is an integral part of modern financial risk management. The well-known Black and Scholes (1973) formula is commonly used for this purpose. This paper is an attempt to extend their work to a situation in which the…

Agent-based models provide a constructive approach to studying emergent dynamics in life-like systems composed of interacting, adaptive agents. Financial markets serve as a canonical example of such systems, where collective price dynamics…

Although behavioral economics has demonstrated that there are many situations where rational choice is a poor empirical model, it has so far failed to provide quantitative models of economic problems such as price formation. We make a step…

We consider a generic market model with a single stock and with random volatility. We assume that there is a number of tradable options for that stock with different strike prices. The paper states the problem of finding a pricing rule that…

Financial markets exhibit highly dynamic and complex behaviors shaped by both historical price trajectories and exogenous narratives, such as news, policy interpretations, and social media sentiment. The heterogeneity in these data and the…

We consider a non-stochastic online learning approach to price financial options by modeling the market dynamic as a repeated game between the nature (adversary) and the investor. We demonstrate that such framework yields analogous…

Human decision-making in real-life deviates significantly from the optimal decisions made by fully rational agents, primarily due to computational limitations or psychological biases. While existing studies in behavioral finance have…

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…

Based on the analog between the stochastic dynamics and quantum harmonic oscillator, we propose a market force driving model to generalize the Black-Scholes model in finance market. We give new schemes of option pricing, in which we can…

Humans and animals have the ability to reason and make predictions about different courses of action at many time scales. In reinforcement learning, option models (Sutton, Precup \& Singh, 1999; Precup, 2000) provide the framework for this…

According to the volatility feedback effect, an unexpected increase in squared volatility leads to an immediate decline in the price-dividend ratio. In this paper, we consider the properties of stock price dynamics and option valuations…

The classical discrete time model of proportional transaction costs relies on the assumption that a feasible portfolio process has solvent increments at each step. We extend this setting in two directions, allowing for convex transaction…

In recent literature it is claimed that BitCoin price behaves more likely to a volatile stock asset than a currency and that changes in its price are influenced by sentiment about the BitCoin system itself; in Kristoufek [10] the author…

Classical finance models are based on the premise that investors act rationally and utilize all available information when making portfolio decisions. However, these models often fail to capture the anomalies observed in intertemporal…

This research presents a novel approach to predicting option movements by analyzing residual transactions, which are trades that deviate from standard hedging activities. Unlike traditional methods that primarily focus on open interest and…

We study a market model in which the volatility of the stock may jump at a random time from a fixed value to another fixed value. This model was already described in the literature. We present a new approach to the problem, based on partial…

Based on empirical market data, a stochastic volatility model is proposed with volatility driven by fractional noise. The model is used to obtain a risk-neutrality option pricing formula and an option pricing equation.

We consider conditional-mean hedging in a fractional Black-Scholes pricing model in the presence of proportional transaction costs. We develop an explicit formula for the conditional-mean hedging portfolio in terms of the recently…

A statistical decision problem is hidden in the core of option pricing. A simple form for the price C of a European call option is obtained via the minimum Bayes risk, R_B, of a 2-parameter estimation problem, thus justifying calling C…

We study the range of prices at which a rational agent should contemplate transacting a financial contract outside a given securities market. Trading is subject to nonproportional transaction costs and portfolio constraints and full…