Related papers: Option Pricing in Markets with Informed Traders
Financial derivatives pricing aims to find the fair value of a financial contract on an underlying asset. Here we consider option pricing in the partial differential equations framework. The contemporary models lead to one-dimensional or…
In this article we propose a novel approach to reduce the computational complexity of various approximation methods for pricing discrete time American options. Given a sequence of continuation values estimates corresponding to different…
Optimal pricing of European call option is described by linear stochastic differential equation. Trading strategy given by a twin of stochastic variables was integrated w.r.t. Black-Scholes formula to adopt optimal pricing to tarading…
In the previous paper (Inverse Problems, 32, 015010, 2016), a new heuristic mathematical model was proposed for accurate forecasting of prices of stock options for 1-2 trading days ahead of the present one. This new technique uses the…
There is a well developed framework, the Black-Scholes theory, for the pricing of contracts based on the future prices of certain assets, called options. This theory assumes that the probability distribution of the returns of the underlying…
In this article we develop an explicit formula for pricing European options when the underlying stock price follows a non-linear stochastic differential delay equation (sdde). We believe that the proposed model is sufficiently flexible to…
In this paper, we investigate the relation between Bachelier and Black-Scholes models driven by the infinitely divisible inverse subordinators. Such models, in contrast to their classical equivalents, can be used in markets where periods of…
In this paper, we study a game with positive or plus infinite expectation and determine the optimal proportion of investment for maximizing the limit expectation of growth rate per attempt. With this objective, we introduce a new pricing…
When the underlying asset displays oscillations, spikes or heavy-tailed distributions, the lognormal diffusion process (for which Black and Scholes developed their momentous option pricing formula) is inadequate: in order to overcome these…
We study the Option pricing with linear investment strategy based on discrete time trading of the underlying security, which unlike the existing continuous trading models provides a feasible real market implementation. Closed form formulas…
We study strategic interactions in a broker-mediated market in which agents learn and exploit each other's private information. A broker provides liquidity to an informed trader and to noise traders while managing inventory in a lit market.…
We present an approach for pricing European call options in presence of proportional transaction costs, when the stock price follows a general exponential L\'{e}vy process. The model is a generalization of the celebrated work of Davis,…
No--arbitrage property provides a simple method for pricing financial derivatives. However, arbitrage opportunities exist among different markets in various fields, even for a very short time. By knowing that an arbitrage property exists,…
This project attempts to address the problem of asset pricing in a financial market, where the interest rates and volatilities exhibit regime switching. This is an extension of the Black-Scholes model. Studies of Markov-modulated regime…
We study specific nonlinear transformations of the Black-Scholes implied volatility to show remarkable properties of the volatility surface. Model-free bounds on the implied volatility skew are given. Pricing formulas for the European…
In this paper, we study the asymptotic behavior of Asian option prices in the worst case scenario under an uncertain volatility model. We give a procedure to approximate the Asian option prices with a small volatility interval. By imposing…
A new method is proposed to obtain the risk neutral probability of share prices without stochastic calculus and price modeling, via an embedding of the price return modeling problem in Le Cam's statistical experiments framework.…
Market making of options with different maturities and strikes is a challenging problem due to its highly dimensional nature. In this paper, we propose a novel approach that combines a stochastic policy and reinforcement learning-inspired…
The approach that allows find European option price on the assumption of hedging at discrete times is proposed. The routine allows find the option price not for lognormal distribution functions of underlying asset only but for wide enough…
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…