Related papers: A note on closed-form spread option valuation unde…
The approach that allows find European option price on the assumption of hedging at discrete times is proposed. The routine allows find the option price not for lognormal distribution functions of underlying asset only but for wide enough…
We observe that a European Call option with strike $L > K$ can be seen as a Call option with strike $L-K$ on a Call option with strike $K$. Under no arbitrage assumptions, this yields immediately that the prices of the two contracts are the…
Pricing of financial derivatives, in particular early exercisable options such as Bermudan options, is an important but heavy numerical task in financial institutions, and its speed-up will provide a large business impact. Recently,…
Using spectral decomposition techniques and singular perturbation theory, we develop a systematic method to approximate the prices of a variety of options in a fast mean-reverting stochastic volatility setting. Four examples are provided in…
The paper proposes a class of financial market models which are based on inhomogeneous telegraph processes and jump diffusions with alternating volatilities. It is assumed that the jumps occur when the tendencies and volatilities are…
In a seminal paper in 1973, Black and Scholes argued how expected distributions of stock prices can be used to price options. Their model assumed a directed random motion for the returns and consequently a lognormal distribution of asset…
This work studies the valuation of currency options in markets suffering from a financial crisis. We consider a European option where the underlying asset is a foreign currency. We assume that the value of the underlying asset is a…
Contrary to the common view that exact pricing is prohibitive owing to the curse of dimensionality, this study proposes an efficient and unified method for pricing options under multivariate Black-Scholes-Merton (BSM) models, such as the…
In this paper we investigate general linear stochastic volatility models with correlated Brownian noises. In such models the asset price satisfies a linear SDE with coefficient of linearity being the volatility process. This class contains…
Advertising options have been recently studied as a special type of guaranteed contracts in online advertising, which are an alternative sales mechanism to real-time auctions. An advertising option is a contract which gives its buyer a…
In this paper, we derive the price of a European call option of an asset following a normal process assuming stochastic volatility. The volatility is assumed to follow the Cox Ingersoll Ross (CIR) process. We then use the fast Fourier…
Trading option strangles is a highly popular strategy often used by market participants to mitigate volatility risks in their portfolios. In this paper we propose a measure of the relative value of a delta-Symmetric Strangle and compute it…
The mean objective of this paper is to derive an explicit formula for a price of an European option associated to the underlying delayed stock price which follows a linear differential equation with a general delay in the drift term. We use…
This paper aims to develop a supervised deep-learning scheme to compute call option prices for the Barndorff-Nielsen and Shephard model with a non-martingale asset price process having infinite active jumps. In our deep learning scheme,…
We present an option pricing formula for European options in a stochastic volatility model. In particular, the volatility process is defined using a fractional integral of a diffusion process and both the stock price and the volatility…
Optimal pricing of European call option is described by linear stochastic differential equation. Trading strategy given by a twin of stochastic variables was integrated w.r.t. Black-Scholes formula to adopt optimal pricing to tarading…
In this paper we derive an easily computed approximation to European basket call prices for a local volatility jump-diffusion model. We apply the asymptotic expansion method to find the approximate value of the lower bound of European…
Here we develop an option pricing method based on Legendre series expansion of the density function. The key insight, relying on the close relation of the characteristic function with the series coefficients, allows to recover the density…
This paper presents a multinomial method for option pricing when the underlying asset follows an exponential Variance Gamma process. The continuous time Variance Gamma process is approximated by a discrete time Markov chain with the same…
This study presents a long-term alternative formula for stock price variation described by a geometric Brownian motion on the basis of median instead of mean or expected values. The proposed method is motivated by the observation made in…