Related papers: On certain representations of pricing functionals
Option contracts can be valued by using the Black-Scholes equation, a partial differential equation with initial conditions. An exact solution for European style options is known. The computation time and the error need to be minimized…
This paper proposes a theory of pricing premised upon the assumptions that customers dislike unfair prices---those marked up steeply over cost---and that firms take these concerns into account when setting prices. Since they do not observe…
Prediction markets are often described as mechanisms that ``aggregate information'' into prices, yet the mapping from dispersed private information to observed market histories is typically noisy, endogenous, and shaped by heterogeneous and…
After a brief review of option pricing theory, we introduce various methods proposed for extracting the statistical information implicit in options prices. We discuss the advantages and drawbacks of each method, the interpretation of their…
We investigate approximately optimal mechanisms in settings where bidders' utility functions are non-linear; specifically, convex, with respect to payments (such settings arise, for instance, in procurement auctions for energy). We provide…
We study some properties of the American option price in the stochastic volatility Heston model. We first prove that, if the payoff function is convex and satisfies some regularity assumptions, then the option value function is increasing…
We consider a real options model for the optimal irreversible investment problem of a profit maximizing company. The company has the opportunity to invest into a production plant capable of producing two products, of which the prices follow…
We consider an optimization problem with positively homogeneous functions in its objective and constraint functions. Examples of such positively homogeneous functions include the absolute value function and the $p$-norm function, where $p$…
We consider a financial model with permanent price impact. Continuous time trading dynamics are derived as the limit of discrete rebalancing policies. We then study the problem of super-hedging a European option. Our main result is the…
In this paper is investigated the pricing problem of options on bonds with credit risk based on analysis on two kinds of solving problems for the Black-Scholes equations. First, a solution representation of the Black-Scholes equation with…
We give an analytical characterization of the price function of an American option in Heston-type models. Our approach is based on variational inequalities and extends recent results of Daskalopoulos and Feehan (2011). We study the…
The classical approach to inverse problems is based on the optimization of a misfit function. Despite its computational appeal, such an approach suffers from many shortcomings, e.g., non-uniqueness of solutions, modeling prior knowledge,…
In a model with no given probability measure, we consider asset pricing in the presence of frictions and other imperfections and characterize the property of coherent pricing, a notion related to (but much weaker than) the no arbitrage…
The paper studies sub and super-replication price bounds for contingent claims defined on general trajectory based market models. No prior probabilistic or topological assumptions are placed on the trajectory space, trading is assumed to…
A method for pricing and superhedging European options under proportional transaction costs based on linear vector optimisation and geometric duality developed by Lohne & Rudloff (2014) is compared to a special case of the algorithms for…
The pricing of options, warrants and other derivative securities is one of the great success of financial economics. These financial products can be modeled and simulated using quantum mechanical instruments based on a Hamiltonian…
In this paper, we describe a general method for constructing the posterior distribution of an option price. Our framework takes as inputs the prior distributions of the parameters of the stochastic process followed by the underlying, as…
Option contracts can be valued by using the Black-Scholes equation, a partial differential equation with initial conditions. An exact solution for European style options is known. The computation time and the error need to be minimized…
Valuation and parity formulas for both European-style and American-style exchange options are presented in a general financial model allowing for jumps, possibility of default and "bubbles" in asset prices. The formulas are given via…
European options can be priced by solving parabolic partial(-integro) differential equations under stochastic volatility and jump-diffusion models like Heston, Merton, and Bates models. American option prices can be obtained by solving…