Related papers: Black to Negative: Embedded optionalities in commo…
Reliability Options are capacity remuneration mechanisms aimed at enhancing security of supply in electricity systems. They can be framed as call options on electricity sold by power producers to System Operators. This paper provides a…
Usually, in the Black-Scholes pricing theory the volatility is a positive real parameter. Here we explore what happens if it is allowed to be a complex number. The function for pricing a European option with a complex volatility has…
We propose a probabilistic framework for pricing derivatives, which acknowledges that information and beliefs are subjective. Market prices can be translated into implied probabilities. In particular, futures imply returns for these implied…
Market making refers to a form of trading in financial markets characterized by passive orders which add liquidity to limit order books. Market makers are important for the proper functioning of financial markets worldwide. Given the…
A classical inventory problem is studied from the perspective of embedded options, reducing inventory-management to the design of optimal contracts for forward delivery of stock (commodity). Financial option techniques \`{a} la…
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…
Binary classifiers are traditionally studied by propositional logic (PL). PL can only represent them as white boxes, under the assumption that the underlying Boolean function is fully known. Binary classifiers used in practical applications…
This article introduces a new mathematical concept of illiquidity that goes hand in hand with credit risk. The concept is not volume- but constraint-based, i.e., certain assets cannot be shorted and are ineligible as num\'eraire. If those…
In commodity markets the convergence of futures towards spot prices, at the expiration of the contract, is usually justified by no-arbitrage arguments. In this article, we propose an alternative approach that relies on the expected profit…
Models to price long term loans in the securities lending business are developed. These longer horizon deals can be viewed as contracts with optionality embedded in them. This insight leads to the usage of established methods from…
In commodity and energy markets swing options allow the buyer to hedge against futures price fluctuations and to select its preferred delivery strategy within daily or periodic constraints, possibly fixed by observing quoted futures…
Black-Scholes implied volatility is a quantile. The insight follows from the normalized option price being a probability on the variance scale, with the inverse Gaussian distribution providing the link. It enables analytically exact and…
In a model with no given probability measure, we consider asset pricing in the presence of frictions and other imperfections and characterize the property of coherent pricing, a notion related to (but much weaker than) the no arbitrage…
Agricultural commodity futures are often settled by delivery. Quality options that allow the futures short to deliver one of several underlying assets are commonly used in such contracts to prevent manipulation. Inclusion of these options…
In a model with no given probability measure, we consider asset pricing in the presence of frictions and other imperfections and characterize the property of coherent pricing, a notion related to (but much weaker than) the no arbitrage…
We present a stochastic local volatility model for derivative contracts on commodity futures. The aim of the model is to be able to recover the prices of derivative claims both on futures contracts and on indices on futures strategies.…
We introduce a basic model for contracts. Our model extends event structures with a new relation, which faithfully captures the circular dependencies among contract clauses. We establish whether an agreement exists which respects all the…
Option contracts can be valued by using the Black-Scholes equation, a partial differential equation with initial conditions. An exact solution for European style options is known. The computation time and the error need to be minimized…
Introduction of market mechanisms in distribution systems is currently subject to extensive studies. One of the challenges facing Distribution Market Operators (DMOs) is to implement a fair and economically efficient pricing mechanism that…
Here we propose two alternatives to Black 76 to value European option future contracts in which the underlying market prices can be negative or mean reverting. The two proposed models are Ornstein-Uhlenbeck (OU) and continuous time GARCH…