Related papers: Option Pricing in Markets with Informed Traders
In the paper written by Klibanov et al, it proposes a novel method to calculate implied volatility of a European stock options as a solution to ill-posed inverse problem for the Black-Scholes equation. In addition, it proposes a trading…
Given a finite set of European call option prices on a single underlying, we want to know when there is a market model which is consistent with these prices. In contrast to previous studies, we allow models where the underlying trades at a…
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…
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…
With the rapid advancement of neural networks, methods for option pricing have evolved significantly. This study employs the Black-Scholes-Merton (B-S-M) model, incorporating an additional variable to improve the accuracy of predictions…
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…
Pricing of high-dimensional options is one of the most important problems in Mathematical Finance. The objective of this manuscript is to present an original self-contained treatment of the multidimensional pricing. During the past decades…
Predicting volatility is important for asset predicting, option pricing and hedging strategies because it cannot be directly observed in the financial market. The Black-Scholes option pricing model is one of the most widely used models by…
We present an experimental and simulated model of a multi-agent stock market driven by a double auction order matching mechanism. Studying the effect of cumulative information on the performance of traders, we find a non monotonic…
The Black-Scholes theory of option pricing has been considered for many years as an important but very approximate zeroth-order description of actual market behavior. We generalize the functional form of the diffusion of these systems and…
We present a unified, market-complete model that integrates both the Bachelier and Black-Scholes-Merton frameworks for asset pricing. The model allows for the study, within a unified framework, of asset pricing in a natural world that…
Option pricing formulas are derived from a non-Gaussian model of stock returns. Fluctuations are assumed to evolve according to a nonlinear Fokker-Planck equation which maximizes the Tsallis nonextensive entropy of index $q$. A generalized…
In the information-based approach to asset pricing the market filtration is modelled explicitly as a superposition of signals concerning relevant market factors and independent noise. The rate at which the signal is revealed to the market…
Option pricing is a significant problem for option risk management and trading. In this article, we utilize a framework to present financial data from different sources. The data is processed and represented in a form of 2D tensors in three…
This paper presents a novel way to predict options price for one day in advance, utilizing the method of Quasi-Reversibility for solving the Black-Scholes equation. The Black-Scholes equation solved forwards in time with Tikhonov…
We study a multi-agent setting in which brokers transact with an informed trader. Through a sequential Stackelberg-type game, brokers manage trading costs and adverse selection with an informed trader. In particular, supplying liquidity to…
This paper considers utility indifference valuation of derivatives under model uncertainty and trading constraints, where the utility is formulated as an additive stochastic differential utility of both intertemporal consumption and…
In this note, we develop stock option price approximations for a model which takes both the risk o default and the stochastic volatility into account. We also let the intensity of defaults be influenced by the volatility. We show that it…
We consider option pricing using replicating binomial trees, with a two fold purpose. The first is to introduce ESG valuation into option pricing. We explore this in a number of scenarios, including enhancement of yield due to trader…
We introduce a novel approach to options trading strategies using a highly scalable and data-driven machine learning algorithm. In contrast to traditional approaches that often require specifications of underlying market dynamics or…