Related papers: A Numerical Approach to Pricing Exchange Options u…
We study the pricing of European-style options written on forward contracts within function-valued infinite-dimensional affine stochastic volatility models. The dynamics of the underlying forward price curves are modeled within the…
In this paper we investigate a nonlinear generalization of the Black-Scholes equation for pricing American style call options in which the volatility term may depend on the underlying asset price and the Gamma of the option. We propose a…
An accurate valuation of American call options is critical in most financial decision making environments. However, traditional models like the Barone-Adesi Whaley (B-AW) and Binomial Option Pricing (BOP) methods fall short in handling the…
In this paper we study the pricing of exchange options under a dynamic described by stochastic correlation with random jumps. In particular, we consider a Ornstein-Uhlenbeck covariance model with Levy Background Noise Process driven by…
In this paper we study the pricing of exchange options when underlying assets have stochastic volatility and stochastic correlation. An approximation using a closed-form approximation based on a Taylor expansion of the conditional price is…
This paper proposes a numerical method for pricing foreign exchange (FX) options in a model which deals with stochastic interest rates and stochastic volatility of the FX rate. The model considers four stochastic drivers, each represented…
Some expansion methods have been proposed for approximately pricing options which has no exact closed formula. Benhamou et al. (2010) presents the smart expansion method that directly expands the expectation value of payoff function with…
Path integral techniques for the pricing of financial options are mostly based on models that can be recast in terms of a Fokker-Planck differential equation and that, consequently, neglect jumps and only describe drift and diffusion. We…
In this paper we propose a semi-analytic approach to pricing American options for time-dependent jump-diffusions models with exponential jumps The idea of the method is to further generalize our approach developed for pricing barrier,…
In this work, we consider the issue of pricing exchange options and spread options with stochastic interest rates. We provide the closed form solution for the exchange option price when interest rate is stochastic. Our result holds when…
In the option valuation literature, the shortcomings of one factor stochastic volatility models have traditionally been addressed by adding jumps to the stock price process. An alternate approach in the context of option pricing and…
Following the foundational work of the Black--Scholes model, extensive research has been developed to price the option by addressing its underlying assumptions and associated pricing biases. This study introduces a novel framework for…
In this paper we consider a jump-diffusion dynamic whose parameters are driven by a continuous time and stationary Markov Chain on a finite state space as a model for the underlying of European contingent claims. For this class of processes…
In this paper we discuss the basket options valuation for a jump-diffusion model. The underlying asset prices follow some correlated local volatility diffusion processes with systematic jumps. We derive a forward partial integral…
We present the method of moments approach to pricing barrier-type options when the underlying is modelled by a general class of jump diffusions. By general principles the option prices are linked to certain infinite dimensional linear…
When the underlying asset displays oscillations, spikes or heavy-tailed distributions, the lognormal diffusion process (for which Black and Scholes developed their momentous option pricing formula) is inadequate: in order to overcome these…
This paper presents the solution to a European option pricing problem by considering a regime-switching jump diffusion model of the underlying financial asset price dynamics. The regimes are assumed to be the results of an observed pure…
In this paper, we propose an iterative splitting method to solve the partial differential equations in option pricing problems. We focus on the Heston stochastic volatility model and the derived two-dimensional partial differential equation…
In the present paper we present a finite element approach for option pricing in the framework of a well-known stochastic volatility model with jumps, the Bates model. In this model the asset log-returns are assumed to follow a…
We introduce a new method to price American-style options on underlying investments governed by stochastic volatility (SV) models. The method does not require the volatility process to be observed. Instead, it exploits the fact that the…