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In this paper, we address the question of the optimal Delta and Vega hedging of a book of exotic options when there are execution costs associated with the trading of vanilla options. In a framework where exotic options are priced using a…
We study robust notions of good-deal hedging and valuation under combined uncertainty about the drifts and volatilities of asset prices. Good-deal bounds are determined by a subset of risk-neutral pricing measures such that not only…
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…
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…
Learning physical properties of a quantum system is essential for the developments of quantum technologies. However, Heisenberg's uncertainty principle constrains the potential knowledge one can simultaneously have about a system in quantum…
We study the valuation and hedging problem of European options in a market subject to liquidity shocks. Working within a Markovian regime-switching setting, we model illiquidity as the inability to trade. To isolate the impact of such…
We consider as given a discrete time financial market with a risky asset and options written on that asset and determine both the sub- and super-hedging prices of an American option in the model independent framework of ArXiv:1305.6008. We…
We consider derivatives written on multiple underlyings in a one-period financial market, and we are interested in the computation of model-free upper and lower bounds for their arbitrage-free prices. We work in a completely realistic…
We address the problem of combined stochastic and impulse control for a market maker operating in a limit order book. The problem is formulated as a Hamilton-Jacobi-Bellman quasi-variational inequality (HJBQVI). We propose an implicit…
In the classical model of stock prices which is assumed to be Geometric Brownian motion, the drift and the volatility of the prices are held constant. However, in reality, the volatility does vary. In quantitative finance, the Heston model…
We introduce a model for limit order book of a certain security with two main features: First, both the limit orders and market orders for the given asset are allowed to appear and interact with each other. Second, the high frequency…
Stochastic volatility models have existed in Option pricing theory ever since the crash of 1987 which violated the Black-Scholes model assumption of constant volatility. Heston model is one such stochastic volatility model that is widely…
The two main issues for managing wrong way risk (WWR) for the credit valuation adjustment (CVA, i.e. WW-CVA) are calibration and hedging. Hence we start from a novel model-free worst-case approach based on static hedging of counterparty…
We develop a novel deep learning approach for pricing European options in diffusion models, that can efficiently handle high-dimensional problems resulting from Markovian approximations of rough volatility models. The option pricing partial…
We formulate uncertainty relations for arbitrary finite number of incompatible observables. Based on the sum of variances of the observables, both Heisenberg-type and Schr\"{o}dinger-type uncertainty relations are provided. These new lower…
We study the Hull-White model for the term structure of interest rates in the presence of volatility uncertainty. The uncertainty about the volatility is represented by a set of beliefs, which naturally leads to a sublinear expectation and…
We develop robust pricing and hedging of a weighted variance swap when market prices for a finite number of co--maturing put options are given. We assume the given prices do not admit arbitrage and deduce no-arbitrage bounds on the weighted…
The standard cosmological model, known as the LambdaCDM model, has been successful in many respects, but it has some significant discrepancies, some of which have not been resolved yet. In measuring the Hubble-Lematre parameter, there is an…
Local volatility is an important quantity in option pricing, portfolio hedging, and risk management. It is not directly observable from the market; hence calibrations of local volatility models are necessary using observable market data.…
Most of the empirical studies on stochastic volatility dynamics favor the 3/2 specification over the square-root (CIR) process in the Heston model. In the context of option pricing, the 3/2 stochastic volatility model is reported to be able…