Related papers: ESG-valued discrete option pricing in complete mar…
The purpose of the paper is to present a new pricing method for clean spread options, and to illustrate its main features on a set of numerical examples produced by a dedicated computer code. The novelty of the approach is embedded in the…
Applying the Cherny-Shiryaev-Yor invariance principle, we introduce a generalized Jarrow-Rudd (GJR) option pricing model with uncertainty driven by a skew random walk. The GJR pricing tree exhibits skewness and kurtosis in both the natural…
Pricing financial or real options with arbitrary payoffs in regime-switching models is an important problem in finance. Mathematically, it is to solve, under certain standard assumptions, a general form of optimal stopping problems in…
Several real-world classification problems are example-dependent cost-sensitive in nature, where the costs due to misclassification vary between examples and not only within classes. However, standard classification methods do not take…
We derive valuations of a portfolio of financial instruments from a securities lending perspective, under different assumptions, and show a weighting scheme that converges to the true valuation. We illustrate conditions under which our…
A general method to construct recombinant tree approximations for stochastic volatility models is developed and applied to the Heston model for stock price dynamics. In this application, the resulting approximation is a four tuple Markov…
In several applications of automatic diagnosis and active learning a central problem is the evaluation of a discrete function by adaptively querying the values of its variables until the values read uniquely determine the value of the…
We consider the use of pricing as a regulatory mechanism when an unknown number of autonomous agents compete for access to a shared resource (possibly limited in volume or capacity). In standard dynamic pricing control systems, an…
In a market with transaction costs, the price of a derivative can be expressed in terms of (preconsistent) price systems (after Kusuoka (1995)). In this paper, we consider a market with binomial model for stock price and discuss how to…
We present two models for incorporating the total effect of market microstructure noise into dynamic pricing of assets and European options. The first model is developed under a Black-Scholes-Merton, continuous-time framework. The second…
We introduce the use of reinforcement learning for indirect mechanisms, working with the existing class of sequential price mechanisms, which generalizes both serial dictatorship and posted price mechanisms and essentially characterizes all…
We propose a novel structural estimation framework in which we train a surrogate of an economic model with deep neural networks. Our methodology alleviates the curse of dimensionality and speeds up the evaluation and parameter estimation by…
We study the dynamic pricing and replenishment problems under inconsistent decision frequencies. Different from the traditional demand assumption, the discreteness of demand and the parameter within the Poisson distribution as a function of…
The usual theory of asset pricing in finance assumes that the financial strategies, i.e. the quantity of risky assets to invest, are real-valued so that they are not integer-valued in general, see the Black and Scholes model for instance.…
The duality principle in option pricing aims at simplifying valuation problems that depend on several variables by associating them to the corresponding dual option pricing problem. Here, we analyze the duality principle for options that…
This paper explores the application and significance of the second-order Esscher pricing model in option pricing and risk management. We split the study into two main parts. First, we focus on the constant jump diffusion (CJD) case,…
Recently, there is growing interest and need for dynamic pricing algorithms, especially, in the field of online marketplaces by offering smart pricing options for big online stores. We present an approach to adjust prices based on the…
Based on the analog between the stochastic dynamics and quantum harmonic oscillator, we propose a market force driving model to generalize the Black-Scholes model in finance market. We give new schemes of option pricing, in which we can…
In this paper, we combine modern portfolio theory and option pricing theory so that a trader who takes a position in a European option contract and the underlying assets can construct an optimal portfolio such that at the moment of the…
We study a discrete-time consumption-based capital asset pricing model under expectations-based reference-dependent preferences. More precisely, we consider an endowment economy populated by a representative agent who derives utility from…