Related papers: Stochastic arbitrage with market index options
This study provides a consistent and efficient pricing method for both Standard & Poor's 500 Index (SPX) options and the Chicago Board Options Exchange's Volatility Index (VIX) options under a multiscale stochastic volatility model. To…
A sequential quadratic programming method is designed for solving general smooth nonlinear stochastic optimization problems subject to expectation equality constraints. We consider the setting where the objective and constraint function…
We consider the problem of finding a consistent upper price bound for exotic options whose payoff depends on the stock price at two different predetermined time points (e.g. Asian option), given a finite number of observed call prices for…
In the paper we consider the problem of valuation and hedging of American options written on dividend-paying assets whose price dynamics follow the multidimensional diffusion model. We derive a stochastic balance equation for the American…
This paper examines the implementation of a statistical arbitrage trading strategy based on co-integration relationships where we discover candidate portfolios using multiple factors rather than just price data. The portfolio selection…
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…
We introduce the class of multistage stochastic optimization problems with a random number of stages. For such problems, we show how to write dynamic programming equations and detail the Stochastic Dual Dynamic Programming algorithm to…
The multidimensional Uncertain Volatility Model leads to robust option pricing problems under joint volatility and correlation uncertainty. Their numerical resolution quickly becomes challenging because the associated stochastic control…
The portfolio optimization problem is a basic problem of financial analysis. In the study, an optimization model for constructing an options portfolio with a certain payoff function has been proposed. The model is formulated as an integer…
To model combinatorial decision problems involving uncertainty and probability, we introduce scenario based stochastic constraint programming. Stochastic constraint programs contain both decision variables, which we can set, and stochastic…
We investigate the pricing of financial options under the 2-hypergeometric stochastic volatility model. This is an analytically tractable model that reproduces the volatility smile and skew effects observed in empirical market data. Using a…
We develop two alternate approaches to arbitrage-free, market-complete, option pricing. The first approach requires no riskless asset. We develop the general framework for this approach and illustrate it with two specific examples. The…
This paper develops a model for option market making in which the hedging activity of the market maker generates price impact on the underlying asset. The option order flow is modeled by Cox processes, with intensities depending on the…
Preferences play a key role in determining what goals/constraints to satisfy when not all constraints can be satisfied simultaneously. In this work, we study preference-based planning in a stochastic system modeled as a Markov decision…
We consider stochastic volatility models under parameter uncertainty and investigate how model derived prices of European options are affected. We let the pricing parameters evolve dynamically in time within a specified region, and…
The stochastic leverage effect, defined as the standardized covariation between the returns and their related volatility, is analyzed in a stochastic volatility model set-up. A novel estimator of the effect is defined using a pre-estimation…
We study a single risky financial asset model subject to price impact and transaction cost over an finite time horizon. An investor needs to execute a long position in the asset affecting the price of the asset and possibly incurring in…
We study the approximation of certain stochastic integrals with respect to a d-dimensional diffusion by corresponding stochastic integrals with piece-wise constant integrands. In finance this corresponds to replacing a continuously adjusted…
Arbitrage is one important revenue source for energy storage in electricity markets. However, a large amount of storage in the market will impact the energy price and reduce potential revenues. This can lead to strategic behaviors of…
The topics treated in this thesis are inherently two-fold. The first part considers the problem of a market maker optimally setting bid/ask quotes over a finite time horizon, to maximize her expected utility. The intensities of the orders…