Related papers: Analytic formula for option margin with liquidity …
Recent empirical studies suggest that the volatility of an underlying price process may have correlations that decay slowly under certain market conditions. In this paper, the volatility is modeled as a stationary process with long-range…
We present an algorithm producing a dynamic non-self-financing hedging strategy in an incomplete market corresponding to investor-relevant risk criterion. The optimization is a two stage process that first determines admissible model…
We describe the pricing and hedging of financial options without the use of probability using rough paths. By encoding the volatility of assets in an enhancement of the price trajectory, we give a pathwise presentation of the replication of…
The latter author, together with collaborators, proposed a numerical scheme to calculate the price of barrier options. The scheme is based on a symmetrization of diffusion process. The present paper aims to give a mathematical credit to the…
We present an approach for pricing European call options in presence of proportional transaction costs, when the stock price follows a general exponential L\'{e}vy process. The model is a generalization of the celebrated work of Davis,…
In a context of illiquidity, the reservation price is a well-accepted alternative to the usual martingale approach which does not apply. However, this price is not available in closed form and requires numerical methods such as Monte Carlo…
In the theory of riskfree hedges in continuous time finance, one can start with the delta-hedge and derive the option pricing equation, or one can start with the replicating, self-financing hedging strategy and derive both the delta-hedge…
We determine the variance-optimal hedge when the logarithm of the underlying price follows a process with stationary independent increments in discrete or continuous time. Although the general solution to this problem is known as backward…
Despite significant advancements in machine learning for derivative pricing, the efficient and accurate valuation of American options remains a persistent challenge due to complex exercise boundaries, near-expiry behavior, and intricate…
We propose a multi-scale stochastic volatility model in which a fast mean-reverting factor of volatility is built on top of the Heston stochastic volatility model. A singular pertubative expansion is then used to obtain an approximation for…
In this article we consider the problem of pricing and hedging high-dimensional Asian basket options by Quasi-Monte Carlo simulation. We assume a Black-Scholes market with time-dependent volatilities and show how to compute the deltas by…
A version of indifference valuation of a European call option is proposed that includes statistical regularities of nonstochastic randomness. Classical relations (forward contract value and Black-Scholes formula) are obtained as particular…
We combine the one-dimensional Monte Carlo simulation and the semi-analytical one-dimensional heat potential method to design an efficient technique for pricing barrier options on assets with correlated stochastic volatility. Our approach…
We introduce a new method to calculate the credit exposure of European and path-dependent options. The proposed method is able to calculate accurate expected exposure and potential future exposure profiles under the risk-neutral and the…
We consider the problem of calculating risk-neutral implied volatilities of European options without relying on option mid prices but solely on bid and ask prices. We provide an approach, based on the conic finance paradigm, that allows to…
Suppose an investor aims at Delta hedging a European contingent claim $h(S(T))$ in a jump-diffusion model, but incorrectly specifies the stock price's volatility and jump sensitivity, so that any hedging strategy is calculated under a…
We propose a hedging approach for general contingent claims when liquidity is a concern and trading is subject to transaction cost. Multiple assets with different liquidity levels are available for hedging. Our risk criterion targets a…
Model-based process simulation can be used to derive designs and operating conditions of chemical processes that optimally balance multiple objectives, such as quality, costs, or environmental impacts. This work focuses on identifying…
We investigate pricing-hedging duality for American options in discrete time financial models where some assets are traded dynamically and others, e.g. a family of European options, only statically. In the first part of the paper we…
Reliability Options are capacity remuneration mechanisms aimed at enhancing security of supply in electricity systems. They can be framed as call options on electricity sold by power producers to System Operators. This paper provides a…