Related papers: Deep Learning for Exotic Option Valuation
Option valuation problems are often solved using standard Monte Carlo (MC) methods. These techniques can often be enhanced using several strategies especially when one discretizes the dynamics of the underlying asset, of which we assume…
Volatility is a natural risk measure in finance as it quantifies the variation of stock prices. A frequently considered problem in mathematical finance is to forecast different estimates of volatility. What makes it promising to use deep…
We present a high-level framework that explains why, in practice, different pricing models calibrated to the same vanilla surface tend to produce similar valuations for exotic derivatives. Our approach acts as an overlay on the Monte Carlo…
In this paper we introduce a deep learning method for pricing and hedging American-style options. It first computes a candidate optimal stopping policy. From there it derives a lower bound for the price. Then it calculates an upper bound, a…
This paper proposes an algorithm based on a staged sliding window Transformer architecture to detect abnormal behaviors in the microstructure of the foreign exchange market, focusing on high-frequency EUR/USD trading data. The method…
In a recent paper "Deep Learning Volatility" a fast 2-step deep calibration algorithm for rough volatility models was proposed: in the first step the time consuming mapping from the model parameter to the implied volatilities is learned by…
This paper addresses the challenges of pricing exotic options and structured products, which traditional models often fail to handle due to their inability to capture real-world market phenomena like fat-tailed distributions and volatility…
We propose a novel algorithm which allows to sample paths from an underlying price process in a local volatility model and to achieve a substantial variance reduction when pricing exotic options. The new algorithm relies on the construction…
A volatility surface is an important tool for pricing and hedging derivatives. The surface shows the volatility that is implied by the market price of an option on an asset as a function of the option's strike price and maturity. Often,…
Valuation adjustments, collectively named XVA, play an important role in modern derivatives pricing to take into account additional price components such as counterparty and funding risk premia. They are an exotic price component carrying a…
Modern methods for multi-criteria assessment (MCA), such as Data Envelopment Analysis (DEA), Stochastic Frontier Analysis (SFA), and Multiple Criteria Decision-Making (MCDM), are utilized to appraise a collection of Decision-Making Units…
Quantization algorithms have been successfully adopted to option pricing in finance thanks to the high convergence rate of the numerical approximation. In particular, very recently, recursive marginal quantization has been proven to be a…
Weighted Monte Carlo prices exotic options calibrating the probabilities of previously generated paths by a regular Monte Carlo to fit a set of option premiums. When only vanilla call and put options and forward prices are considered, the…
The robust option pricing problem is to find upper and lower bounds on fair prices of financial claims using only the most minimal assumptions. It contrasts with the classical, model-based approach and gained prominence in the wake of the…
Hedging exotic options in presence of market frictions is an important risk management task. Deep hedging can solve such hedging problems by training neural network policies in realistic simulated markets. Training these neural networks may…
In this work we present a general representation formula for the price of a vulnerable European option, and the related CVA in stochastic (either rough or not) volatility models for the underlying's price, when admitting correlation with…
In this work we want to provide a general principle to evaluate the CVA (Credit Value Adjustment) for a vulnerable option, that is an option subject to some default event, concerning the solvability of the issuer. CVA is needed to evaluate…
The research presented in this article provides an alternative option pricing approach for a class of rough fractional stochastic volatility models. These models are increasingly popular between academics and practitioners due to their…
The local volatility model is a widely used for pricing and hedging financial derivatives. While its main appeal is its capability of reproducing any given surface of observed option prices---it provides a perfect fit---the essential…
The literature on volatility modelling and option pricing is a large and diverse area due to its importance and applications. This paper provides a review of the most significant volatility models and option pricing methods, beginning with…