Related papers: Option Pricing Incorporating Factor Dynamics in Co…
In this paper we consider a class of generalized Kyle-Back strategic insider trading models in which the insider is able to use the dynamic information obtained by observing the instantaneous movement of an underlying asset that is allowed…
Recent empirical evidence has highlighted the crucial role of jumps in both price and volatility within the cryptocurrency market. In this paper, we integrate price--volatility co-jumps and volatility short-term dependency into a coherent…
A general theory is developed to study individual based models which are discrete in time. We begin by constructing a Markov chain model that converges to a one-dimensional map in the infinite population limit. Stochastic fluctuations are…
We consider high-dimensional asset price models that are reduced in their dimension in order to reduce the complexity of the problem or the effect of the curse of dimensionality in the context of option pricing. We apply model order…
Option pricing in real markets faces fundamental challenges. The Black--Scholes--Merton (BSM) model assumes constant volatility and uses a linear generator $g(t,x,y,z)=-ry$, while lacking explicit behavioral factors, resulting in systematic…
In common finance literature, Black-Scholes partial differential equation of option pricing is usually derived with no-arbitrage principle. Considering an asset market, Merton applied the Hamilton-Jacobi-Bellman techniques of his…
This paper investigates analytic properties of American option prices under the finite moment log-stable (FMLS) model. Under this model the price of American options is characterised by the free boundary problem of a fractional partial…
We introduce a criterion how to price derivatives in incomplete markets, based on the theory of growth optimal strategy in repeated multiplicative games. We present reasons why these growth-optimal strategies should be particularly relevant…
We consider the pricing of derivatives written on the discretely sampled realized variance of an underlying security. In the literature, the realized variance is usually approximated by its continuous-time limit, the quadratic variation of…
We propose a shape-constrained approach to dynamic pricing for censored data in the linear valuation model eliminating the need for tuning parameters commonly required by existing methods. Previous works have addressed the challenge of…
We make several improvements to the mean-variance framework for optimal pre-trade algorithmic execution, by working with volume measures and generic price dynamics. Volume measures are the continuum analogies for discrete volume profiles…
In this study we consider the pricing of energy derivatives when the evolution of spot prices follows a tempered stable or a CGMY driven Ornstein- Uhlenbeck process. To this end, we first calculate the characteristic function of the…
We consider a class of generalized capital asset pricing models in continuous time with a finite number of agents and tradable securities. The securities may not be sufficient to span all sources of uncertainty. If the agents have…
The pricing of financial derivatives, which requires massive calculations and close-to-real-time operations under many trading and arbitrage scenarios, were largely infeasible in the past. However, with the advancement of modern computing,…
During the last years, European intraday power markets have gained importance for balancing forecast errors due to the rising volumes of intermittent renewable generation. However, compared to day-ahead markets, the drivers for the intraday…
Based on forward curves modelled as Hilbert-space valued processes, we analyse the pricing of various options relevant in energy markets. In particular, we connect empirical evidence about energy forward prices known from the literature to…
Spot option prices, forwards and options on forwards relevant for the commodity markets are computed when the underlying process S is modelled as an exponential of a process {\xi} with memory as e.g. a L\'evy semi-stationary process.…
We consider plain vanilla European options written on an underlying asset that follows a continuous time semi-Markov multiplicative process. We derive a formula and a renewal type equation for the martingale option price. In the case in…
We propose a novel Black-Scholes model under which the stock price processes are modeled by stochastic differential equations driven by sub-diffusions. The new framework can capture the less financial activity phenomenon during the bear…
An option market maker incurs funding costs when carrying and hedging inventory. To hedge a net long delta inventory, for example, she pays a fee to borrow stock from the securities lending market. Because of haircuts, she posts additional…