Related papers: Option pricing using a skew random walk pricing tr…
This paper presents a new prediction model for time series data by integrating a time-varying Geometric Brownian Motion model with a pricing mechanism used in financial engineering. Typical time series models such as Auto-Regressive…
Most models for barrier pricing are designed to let a market maker tune the model-implied covariance between moves in the asset spot price and moves in the implied volatility skew. This is often implemented with a local…
On April 22, 2020, the CME Group switched to Bachelier pricing for a group of oil futures options. The Bachelier model, or more generally the arithmetic Brownian motion (ABM), is not so widely used in finance, though. This paper provides…
In this paper we extend discrete time semi-static trading strategies by also allowing for dynamic trading in a finite amount of options, and we study the consequences for the model-independent super-replication prices of exotic derivatives.…
Following the foundational work of the Black--Scholes model, extensive research has been developed to price the option by addressing its underlying assumptions and associated pricing biases. This study introduces a novel framework for…
In this paper we study short-time behavior of the at-the-money implied volatility for Inverse European options with fixed strike price. The asset price is assumed to follow a general stochastic volatility process. Using techniques of the…
This paper aims at designing the different important components of a semi-closed simulated stock market (pricing mechanism, stock allocation and news generation). The purpose is to understand the interactions of the different aspects within…
Continuous time financial market models are often motivated as scaling limits of discrete time models. The objective of this paper is to establish such a connection for a robust framework. More specifically, we consider discrete time models…
A new method is proposed to obtain the risk neutral probability of share prices without stochastic calculus and price modeling, via an embedding of the price return modeling problem in Le Cam's statistical experiments framework.…
We derive the joint density of a Skew Brownian motion, its last visit to the origin, local and occupation times. The result is applied to option pricing in a two valued local volatility model and in a displaced diffusion model with…
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…
We consider plain vanilla European options written on an underlying asset that follows a continuous time semi-Markov multiplicative process. We derive a formula and a renewal type equation for the martingale option price. In the case in…
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 purpose of this paper is to analyze the problem of option pricing when the short rate follows subdiffusive fractional Merton model. We incorporate the stochastic nature of the short rate in our option valuation model and derive explicit…
We consider the Brownian market model and the problem of expected utility maximization of terminal wealth. We, specifically, examine the problem of maximizing the utility of terminal wealth under the presence of transaction costs of a…
Prices of tradables can only be expressed relative to each other at any instant of time. This fundamental fact should therefore also hold for contigent claims, i.e. tradable instruments, whose prices depend on the prices of other tradables.…
We construct a binary market model with memory that approximates a continuous-time market model driven by a Gaussian process equivalent to Brownian motion. We give a sufficient conditions for the binary market to be arbitrage-free. In a…
An efficient conditioning technique, the so-called Brownian Bridge simulation, has previously been applied to eliminate pricing bias that arises in applications of the standard discrete-time Monte Carlo method to evaluate options written on…
We construct a binomial tree model fitting all moments to the approximated geometric Brownian motion. Our construction generalizes the classical Cox-Ross-Rubinstein, the Jarrow-Rudd, and the Tian binomial tree models. The new binomial model…
We study a market model in which the volatility of the stock may jump at a random time from a fixed value to another fixed value. This model was already described in the literature. We present a new approach to the problem, based on partial…