Related papers: Analytic formula for option margin with liquidity …
An efficient computational algorithm to price financial derivatives is presented. It is based on a path integral formulation of the pricing problem. It is shown how the path integral approach can be worked out in order to obtain fast and…
Hamiltonian approach in quantum mechanics provides a new thinking for barrier option pricing. For proportional floating barrier step options, the option price changing process is similar to the one dimensional trapezoid potential barrier…
Prepayment risk embedded in fixed-rate mortgages forms a significant fraction of a financial institution's exposure. The embedded prepayment option bears the same interest rate risk as an exotic interest rate swap with a suitable stochastic…
We study the explicit calculation of the set of superhedging portfolios of contingent claims in a discrete-time market model for d assets with proportional transaction costs. The set of superhedging portfolios can be obtained by a recursive…
Models to price long term loans in the securities lending business are developed. These longer horizon deals can be viewed as contracts with optionality embedded in them. This insight leads to the usage of established methods from…
Barrier options are one of the most widely traded exotic options on stock exchanges. In this paper, we develop a new stochastic simulation method for pricing barrier options and estimating the corresponding execution probabilities. We show…
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 paper covers a massive acceleration of Monte-Carlo based pricing method for financial products and financial derivatives. The method is applicable in risk management settings, where a financial product has to be priced under a number…
In this paper, we introduce two novel methods to solve the American-style option pricing problem and its dual form at the same time using neural networks. Without applying nested Monte Carlo, the first method uses a series of neural…
We consider the jump-diffusion risky asset model and study its conditional prediction laws. Next, we explain the conditional least square hedging strategy and calculate its closed form for the jump-diffusion model, considering the…
The question of pricing and hedging a given contingent claim has a unique solution in a complete market framework. When some incompleteness is introduced, the problem becomes however more difficult. Several approaches have been adopted in…
In this article, we consider European options of type $h(X^1_T, X^2_T,\ldots, X^n_T)$ depending on several underlying assets. We study how such options can be valued in terms of simple vanilla options in non-specified market models. We…
We consider the framework proposed by Burgard and Kjaer (2011) that derives the PDE which governs the price of an option including bilateral counterparty risk and funding. We extend this work by relaxing the assumption of absence of…
We model the logarithm of the price (log-price) of a financial asset as a random variable obtained by projecting an operator stable random vector with a scaling index matrix $\underline{\underline{E}}$ onto a non-random vector. The scaling…
We consider insurance derivatives depending on an external physical risk process, for example a temperature in a low dimensional climate model. We assume that this process is correlated with a tradable financial asset. We derive optimal…
The duality between the robust (or equivalently, model independent) hedging of path dependent European options and a martingale optimal transport problem is proved. The financial market is modeled through a risky asset whose price is only…
Traders are often faced with large block orders in markets with limited liquidity and varying volatility. Executing the entire order at once usually incurs a large trading cost because of this limited liquidity. In order to minimize this…
We study the pricing and hedging of European spread options on correlated assets when, in contrast to the standard framework and consistent with imperfect liquidity markets, the trading in the stock market has a direct impact on stocks…
First, we show that implied normal volatility is intimately linked with the incomplete Gamma function. Then, we deduce an expansion on implied normal volatility in terms of the time-value of a European call option. Then, we formulate an…
This study introduces a new technique to recover the implicit discount factor in the derivative market using only European put and call prices: this discount is grounded in actual transactions in active markets. Moreover, this study…