Related papers: Derivatives Pricing in Non-Arbitrage Market

This paper studies nonparametric identification and counterfactual bounds for heterogeneous firms that can be ranked in terms of productivity. Our approach works when quantities and prices are latent, rendering standard approaches…

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 a finite discrete time market with an arbitrary state space and bid-ask spreads is considered. The notion of an equivalent bid-ask martingale measure (EBAMM) is introduced and the fundamental theorem of asset pricing is proved…

We consider a defaultable asset whose risk-neutral pricing dynamics are described by an exponential Levy-type martingale subject to default. This class of models allows for local volatility, local default intensity, and a locally dependent…

Importance sampling is a promising variance reduction technique for Monte Carlo simulation based derivative pricing. Existing importance sampling methods are based on a parametric choice of the proposal. This article proposes an algorithm…

We study the martingale property and moment explosions of a signature volatility model, where the volatility process of the log-price is given by a linear form of the signature of a time-extended Brownian motion. Excluding trivial cases, we…

The purpose of this paper is two-fold. First is to extend the notions of an n-dimensional semimartingale and its stochastic integral to a piecewise semimartingale of stochastic dimension. The properties of the former carry over largely…

We provide a model-free pricing-hedging duality in continuous time. For a frictionless market consisting of $d$ risky assets with continuous price trajectories, we show that the purely analytic problem of finding the minimal superhedging…

Experimental results on market behavior establish a lower stability and efficiency of markets for durable re-tradable assets compared to markets for non-durable, or perishable, goods. In this chapter, we revisit this known but…

We study the pricing of derivative securities in financial markets modeled by a sub-mixed fractional Brownian motion with jumps (smfBm-J), a non-Markovian process that captures both long-range dependence and jump discontinuities. Under this…

This paper explores hypothesis testing for the parametric forms of the mean and variance functions in regression models under diverging-dimension settings. To mitigate the curse of dimensionality, we introduce weighted residual empirical…

In this paper, we present a data-driven ensemble approach for option price prediction whose derivation is based on the no-arbitrage theory of option pricing. Using the theoretical treatment, we derive a common representation space for…

A concept of martingale-fair index of return, consistent with Arbitrage Free Pricing Theory, is introduced. An explicit formula for the average rate of return of a group of investment/pension funds in a discrete time stochastic model is…

We consider the estimation of binary election outcomes as martingales and propose an arbitrage pricing when one continuously updates estimates. We argue that the estimator needs to be priced as a binary option as the arbitrage valuation…

We derive deterministic criteria for the existence and non-existence of equivalent (local) martingale measures for financial markets driven by multi-dimensional time-inhomogeneous diffusions. Our conditions can be used to construct…

This paper presents an axiomatic scheme for interest rate models in discrete time. We take a pricing kernel approach, which builds in the arbitrage-free property and provides a link to equilibrium economics. We require that the pricing…

A stochastic model for pure-jump diffusion (the compound renewal process) can be used as a zero-order approximation and as a phenomenological description of tick-by-tick price fluctuations. This leads to an exact and explicit general…

The paper introduces benchmark-neutral pricing and hedging for long-term contingent claims. It employs the growth optimal portfolio of the stocks as numeraire and the new benchmark-neutral pricing measure for pricing. For a realistic…

The predictive Bayesian view involves eliciting a sequence of one-step-ahead predictive distributions in lieu of specifying a likelihood function and prior distribution. Recent methods have leveraged predictive distributions which are…

We consider the mean-variance hedging problem under partial information in the case where the flow of observable events does not contain the full information on the underlying asset price process. We introduce a martingale equation of a new…