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Building on a prominent agent-based model, we present a new structural stochastic volatility asset pricing model of fundamentalists vs. chartists where the prices are determined based on excess demand. Specifically, this allows for…
Recent years have seen an emerging class of structured financial products based on options linked to dynamic asset allocation strategies. One of the most chosen approach is the so-called target volatility mechanism. It shifts between risky…
Proof that under simple assumptions, such as constraints of Put-Call Parity, the probability measure for the valuation of a European option has the mean derived from the forward price which can, but does not have to be the risk-neutral one,…
We introduce a new identification strategy for uncertainty shocks to explain macroeconomic volatility in financial markets. The Chicago Board Options Exchange Volatility Index (VIX) measures market expectations of future volatility, but…
We consider the randomness of market trade as the origin of price and return stochasticity. We look at time series of trade values and volumes as random variables during the averaging interval {\Delta} and describe the dependences of…
It is a market practice to express market-implied volatilities in some parametric form. The most popular parametrizations are based on or inspired by an underlying stochastic model, like the Heston model (SVI method) or the SABR model (SABR…
In this paper, we propose an equilibrium pricing model in a dynamic multi-period stochastic framework with uncertain income streams. In an incomplete market, there exist two traded risky assets (e.g. stock/commodity and weather derivative)…
The volatility characterizes the amplitude of price return fluctuations. It is a central magnitude in finance closely related to the risk of holding a certain asset. Despite its popularity on trading floors, the volatility is unobservable…
We consider the robust pricing and hedging of American options in a continuous time setting. We assume asset prices are continuous semimartingales, but we allow for general model uncertainty specification via adapted closed convex…
The instability of the Ivancevic option pricing model is studied through the variational method. We have analytically derived the dispersion relation of the IOPM for both constant volatility and Landau coefficient model and time-dependent…
Model uncertainty is a type of inevitable financial risk. Mistakes on the choice of pricing model may cause great financial losses. In this paper we investigate financial markets with mean-volatility uncertainty. Models for stock markets…
We show the existence and uniqueness of a continuous solution to a path-dependent volatility model introduced by Guyon and Lekeufack (2023) to model the price of an equity index and its spot volatility. The considered model for the trend…
Recent developments in financial time series focus on modeling volatility across multiple assets or indices in a multivariate framework, accounting for potential interactions such as spillover effects. Furthermore, the increasing…
In this article we look at stochastic processes with uncertain parameters, and consider different ways in which information is obtained when carrying out observations. For example we focus on the case of a the random evolution of a traded…
We consider the problem of computing the Credit Value Adjustment ({CVA}) of a European option in presence of the Wrong Way Risk ({WWR}) in a default intensity setting. Namely we model the asset price evolution as solution to a linear…
We develop generic and efficient importance sampling estimators for Monte Carlo evaluation of prices of single- and multi-asset European and path-dependent options in asset price models driven by L\'evy processes, extending earlier works…
We propose a probabilistic framework for pricing derivatives, which acknowledges that information and beliefs are subjective. Market prices can be translated into implied probabilities. In particular, futures imply returns for these implied…
We consider arbitrage free valuation of European options in Black-Scholes and Merton markets, where the general structure of the market is known, however the specific parameters are not known. In order to reflect this subjective uncertainty…
In financial markets, accurately measuring the risk of future fluctuations in asset prices is of paramount importance. Studies such as Carr and Madan have shown that the expected value of the quadratic variation of log prices can be…
We compute the value of a variance swap when the underlying is modeled as a Markov process time changed by a L\'{e}vy subordinator. In this framework, the underlying may exhibit jumps with a state-dependent L\'{e}vy measure, local…