Related papers: Skewing Quanto with Simplicity
Quanto options allow the buyer to exchange the foreign currency payoff into the domestic currency at a fixed exchange rate. We investigate quanto options with multiple underlying assets valued in different foreign currencies each with a…
In the paper, the pricing of Quanto options is studied, where the underlying foreign asset and the exchange rate are correlated with each other. Firstly, we adopt Bayesian methods to estimate unknown parameters entering the pricing formula…
Currency arbitrage leverages price discrepancies in currency exchange rates across different currency pairs to gain risk-free profits. It involves multiple trading, where short-lived price discrepancies require real-time, high-speed…
We extend the qubit-efficient encoding presented in [Tan et al., Quantum 5, 454 (2021)] and apply it to instances of the financial transaction settlement problem constructed from data provided by a regulated financial exchange. Our methods…
Quasi-Monte Carlo (QMC) method is a useful numerical tool for pricing and hedging of complex financial derivatives. These problems are usually of high dimensionality and discontinuities. The two factors may significantly deteriorate the…
Pricing composite and quanto contracts requires a joint model of both the underlying asset and the exchange rate. In this contribution, we explore the potential of local-correlation models to address the challenges of calibrating synthetic…
In FX cash markets, market makers provide liquidity to clients for a wide variety of currency pairs. Because of flow uncertainty and market volatility, they face inventory risk. To mitigate this risk, they typically skew their prices to…
We develop an expansion approach for the pricing of European quanto options written on LIBOR rates (of a foreign currency). We derive the dynamics of the system of foreign LIBOR rates under the domestic forward measure and then consider the…
When trading American and Asian options in the FX derivatives market, banks must calculate prices using a complex mathematical model. It is often observed that different models produce varying prices for the same exotic option, which…
We formulate quantum computing solutions to a large class of dynamic nonlinear asset pricing models using algorithms, in theory exponentially more efficient than classical ones, which leverage the quantum properties of superposition and…
This paper studies equity basket options -- i.e., multi-dimensional derivatives whose payoffs depend on the value of a weighted sum of the underlying stocks -- and develops a new and innovative approach to ensure consistency between options…
Quantum annealers can solve QUBO problems efficiently but struggle with continuous optimization tasks like regression due to their discrete nature. We introduce Quadratic Continuous Quantum Optimization (QCQO), an anytime algorithm that…
The Portfolio Optimization task has long been studied in the Financial Services literature as a procedure to identify the basket of assets that satisfy desired conditions on the expected return and the associated risk. A well-known approach…
The quanto option is a cross-currency derivative in which the pay-off is given in foreign currency and then converted to domestic currency, through a constant exchange rate, used for the conversion and determined at contract inception.…
In the paper a problem of risk measures on a discrete-time market model with transaction costs is studied. Strategy effectiveness and shortfall risk is introduced. This paper is a generalization of quantile hedging presented in [4].
Portfolio Optimization (PO) is a financial problem aiming to maximize the net gains while minimizing the risks in a given investment portfolio. The novelty of Quantum algorithms lies in their acclaimed potential and capability to solve…
Quantum error mitigation (QEM) is a class of promising techniques for reducing the computational error of variational quantum algorithms. In general, the computational error reduction comes at the cost of a sampling overhead due to the…
Quantum Monte Carlo (QMC) methods are the gold standard for studying equilibrium properties of quantum many-body systems -- their phase transitions, ground and thermal state properties. However, in many interesting situations QMC methods…
Quantum computing is poised to transform the financial industry, yet its advantages over traditional methods have not been evidenced. As this technology rapidly evolves, benchmarking is essential to fairly evaluate and compare different…
This article develops a model that takes into account skewness risk in risk parity portfolios. In this framework, asset returns are viewed as stochastic processes with jumps or random variables generated by a Gaussian mixture distribution.…