Related papers: Model-driven statistical arbitrage on LETF option …

We consider a class of asset pricing models, where the risk-neutral joint process of log-price and its stochastic variance is an affine process in the sense of Duffie, Filipovic and Schachermayer [2003]. First we obtain conditions for the…

In this paper we study the short-time behavior of the at-the-money implied volatility for arithmetic Asian options with fixed strike price. The asset price is assumed to follow the Black-Scholes model with a general stochastic volatility…

We introduce a Path Shadowing Monte-Carlo method, which provides prediction of future paths, given any generative model. At any given date, it averages future quantities over generated price paths whose past history matches, or `shadows',…

We show that the frequent claim that the implied tree prices exotic options consistently with the market is untrue if the local volatilities are subject to change and the market is arbitrage-free. In the process, we analyse -- in the most…

Fluctuations in the stock market rapidly shape the economic world and consumer markets, impacting millions of individuals. Hence, accurately forecasting it is essential for mitigating risks, including those associated with inactivity.…

Transformer models have become increasingly popular in financial applications, yet their potential risk making and biases remain under-explored. The purpose of this work is to audit the reliance of the model on volatile data for…

A common belief is that leveraged ETFs (LETFs) suffer long-term performance decay due to \emph{volatility drag}. We show that this view is incomplete: LETF performance depends fundamentally on return autocorrelation and return dynamics. In…

The paper studies estimation of parameters of diffusion market models from historical data. The standard definition of implied volatility for these models presents its value as an implicit function of several parameters, including the…

This paper develops a European option pricing formula for fractional market models. Although there exist option pricing results for a fractional Black-Scholes model, they are established without accounting for stochastic volatility. In this…

We propose a nonparametric estimator of the empirical distribution function (EDF) of the latent spot variance of the log-price of a financial asset. We show that over a fixed time span our realized EDF (or REDF) -- inferred from noisy…

In the present paper, given an evolving mixture of probability densities, we define a candidate diffusion process whose marginal law follows the same evolution. We derive as a particular case a stochastic differential equation (SDE)…

The aim of this work is to introduce a new stochastic volatility model for equity derivatives. To overcome some of the well-known problems of the Heston model, and more generally of the affine models, we define a new specification for the…

We investigate a statistical-static hedging technique for pricing assets considered as single-step stochastic cash flows. The valuation is based on constructing in a canonical way a European style derivative on a benchmark security such…

It is known that Heston's stochastic volatility model exhibits moment explosion, and that the critical moment $s_+$ can be obtained by solving (numerically) a simple equation. This yields a leading order expansion for the implied volatility…

In this paper we develop a novel neural network model for predicting implied volatility surface. Prior financial domain knowledge is taken into account. A new activation function that incorporates volatility smile is proposed, which is used…

Statistical arbitrage is a prevalent trading strategy which takes advantage of mean reverse property of spread of paired stocks. Studies on this strategy often rely heavily on model assumption. In this study, we introduce an innovative…

In this paper new analytical and numerical approaches to valuating path-dependent options of European type have been developed. The model of stochastic volatility as a basic model has been chosen. For European options we could improve the…

This study develops an integrated stochastic modeling framework for pricing short and medium-maturity equity options and assessing interest-rate risk using the Heston (1993), Bates (1996), and CIR (1985) models. We calibrate the Heston…

The paper proposes an expanded version of the Local Variance Gamma model of Carr and Nadtochiy by adding drift to the governing underlying process. Still in this new model it is possible to derive an ordinary differential equation for the…

This paper presents hedging strategies for European and exotic options in a Levy market. By applying Taylor's Theorem, dynamic hedging portfolios are con- structed under different market assumptions, such as the existence of power jump…