Related papers: Regime recovery using implied volatility in Markov…
This paper shows how to recover a stochastic volatility model (SVM) from a market model of the VIX futures term structure. Market models have more flexibility for fitting of curves than do SVMs, and therefore are better suited for pricing…
We develop a quantum algorithm to price discretely monitored lookback options in the Black-Scholes framework using imaginary time evolution. By rewriting the pricing PDE as a Schrodinger-type equation, the problem becomes the imaginary time…
This article investigates a regime-switching investment strategy aimed at mitigating downside risk by reducing market exposure during anticipated unfavorable market regimes. We highlight the statistical jump model (JM) for market regime…
We introduce a local volatility model for the valuation of options on commodity futures by using European vanilla option prices. The corresponding calibration problem is addressed within an online framework, allowing the use of multiple…
In this paper new analytical and numerical approaches to valuating path-dependent options of European type have been developed. The model of stochastic volatility as a basic model has been chosen. For European options we could improve the…
This paper investigates the structural dynamics of stock market volatility through the Financial Chaos Index, a tensor- and eigenvalue-based measure designed to capture realized volatility via mutual fluctuations among asset prices.…
Markov switching models are a popular family of models that introduces time-variation in the parameters in the form of their state- or regime-specific values. Importantly, this time-variation is governed by a discrete-valued latent…
This paper introduces the Inverse Gamma (IGa) stochastic volatility model with time-dependent parameters, defined by the volatility dynamics $dV_{t}=\kappa_{t}\left(\theta_{t}-V_{t}\right)dt+\lambda_{t}V_{t}dB_{t}$. This non-affine model is…
This research addresses accurate option pricing by employing models beyond the traditional Black-Scholes framework. While Black-Scholes provides a closed-form solution, it is limited by assumptions of constant volatility, no dividends, and…
This paper aims to provide a simple modelling of speculative bubbles and derive some quantitative properties of its dynamical evolution. Starting from a description of individual speculative behaviours, we build and study a second order…
The standard Black-Scholes theory of option pricing is extended to cope with underlying return fluctuations described by general probability distributions. A Langevin process and its related Fokker-Planck equation are devised to model the…
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 implied volatility is a crucial element of any financial toolbox, since it is used for quoting and the hedging of options as well as for model calibration. In contrast to the Black-Scholes formula its inverse, the implied volatility, is…
A simple Hawkes model have been developed for the price tick structure dynamics incorporating market microstructure noise and trade clustering. In this paper, the model is extended with random mark to deal with more realistic price tick…
Financial markets exhibit alternating periods of rising and falling prices. Stock traders seeking to make profitable investment decisions have to account for those trends, where the goal is to accurately predict switches from bullish…
In the paper, we characterize the asymptotic behavior of the implied volatility of a basket call option at large and small strikes in a variety of settings with increasing generality. First, we obtain an asymptotic formula with an error…
We propose an explainable regime-aware portfolio construction framework based on a strictly causal Wasserstein Hidden Markov Model. The model combines rolling Gaussian HMM inference with predictive model-order selection and template-based…
Option prices encode the market's collective outlook through implied density and implied volatility. An explicit link between implied density and implied volatility translates the risk-neutrality of the former into conditions on the latter…
We show that the frequent claim that the implied tree prices exotic options consistently with the market is untrue if the local volatilities are subject to change and the market is arbitrage-free. In the process, we analyse -- in the most…
We consider a portfolio optimization problem in a defaultable market with finitely-many economical regimes, where the investor can dynamically allocate her wealth among a defaultable bond, a stock, and a money market account. The market…