Related papers: Hedging Cryptocurrency Options
Decentralized finance (DeFi) lacks centralized oversight, often resulting in heightened volatility. In contrast, centralized finance (CeFi) offers a more stable environment with institutional safeguards. Institutional backing can play a…
Barrier options are one of the most widely traded exotic options on stock exchanges. In this paper, we develop a new stochastic simulation method for pricing barrier options and estimating the corresponding execution probabilities. We show…
The increasing adoption of Digital Assets (DAs), such as Bitcoin (BTC), rises the need for accurate option pricing models. Yet, existing methodologies fail to cope with the volatile nature of the emerging DAs. Many models have been proposed…
Financial markets are a complex dynamical system. The complexity comes from the interaction between a market and its participants, in other words, the integrated outcome of activities of the entire participants determines the markets trend,…
We revisit optimal execution of an active portfolio in the presence of slippage (aka linear, proportional, or absolute-value) costs. Market efficiency implies a close balance between active alphas and trading costs, so even small changes to…
Herding behavior has become a familiar phenomenon to investors, with potential dangers of both undervaluing and overvaluing assets, while also threatening market stability. This study contributes to the literature on herding behavior by…
Delta hedging, which plays a crucial r\^ole in modern financial engineering, is a tracking control design for a "risk-free" management. We utilize the existence of trends in financial time series (Fliess M., Join C.: A mathematical proof of…
The recent emergence of cryptocurrencies such as Bitcoin and Ethereum has posed possible alternatives to global payments as well as financial assets around the globe, making investors and financial regulators aware of the importance of…
We derive the price of a spread option based on two assets which follow a bivariate volatility modulated Volterra process dynamics. Such a price dynamics is particularly relevant in energy markets, modelling for example the spot price of…
In this paper we study the pricing and hedging of structured products in energy markets, such as swing and virtual gas storage, using the exponential utility indifference pricing approach in a general incomplete multivariate market model…
Discrete time hedging in a complete diffusion market is considered. The hedge portfolio is rebalanced when the absolute difference between delta of the hedge portfolio and the derivative contract reaches a threshold level. The rate of…
This work addresses the problem of optimal pricing and hedging of a European option on an illiquid asset Z using two proxies: a liquid asset S and a liquid European option on another liquid asset Y. We assume that the S-hedge is dynamic…
We examine the possibility of incorporating information or views of market movements during the holding period of a portfolio, in the hedging of European options with respect to the underlying. Given a fixed holding period interval, we…
In financial mathematics, the calculation of the Greeks, especially the delta, is emphasized due to its role in risk management. In this article, we employ Malliavin calculus to determine the delta of European and Asian options, where the…
In academic literature portfolio risk management and hedging are often versed in the language of stochastic control and Hamilton--Jacobi--Bellman~(HJB) equations in continuous time. In practice the continuous-time framework of stochastic…
Jump stochastic volatility models are central to financial econometrics for volatility forecasting, portfolio risk management, and derivatives pricing. Markov Chain Monte Carlo (MCMC) algorithms are computationally unfeasible for the…
We study indifference pricing of exotic derivatives by using hedging strategies that take static positions in quoted derivatives but trade the underlying and cash dynamically over time. We use real quotes that come with bid-ask spreads and…
Option pricing is an integral part of modern financial risk management. The well-known Black and Scholes (1973) formula is commonly used for this purpose. This paper is an attempt to extend their work to a situation in which the…
The concepts of scale invariance, self-similarity and scaling have been fruitfully applied to the study of price fluctuations in financial markets. After a brief review of the properties of stable Levy distributions and their applications…
This paper applies an algorithm for the convolution of compactly supported Legendre series (the CONLeg method) (cf. Hale and Townsend 2014a), to pricing/hedging European-type, early-exercise and discrete-monitored barrier options under a…