Related papers: Convexity adjustments \`a la Malliavin

We establish an explicit pricing formula for the class of L\'evy-stable models with maximal negative asymmetry (Log-L\'evy model with finite moments and stability parameter $1<\alpha\leq 2$) in the form of rapidly converging series. The…

In this paper we propose a new deterministic approximation method, called discretization approximation, for Bayesian computation. Discretization approximation is very simple to understand and to implement, It only requires calculating…

We consider closed-form approximations for European put option prices within the Heston and GARCH diffusion stochastic volatility models with time-dependent parameters. Our methodology involves writing the put option price as an expectation…

In Figueroa-L\'opez et al. (2013), a second order approximation for at-the-money (ATM) option prices is derived for a large class of exponential L\'evy models, with or without a Brownian component. The purpose of this article is twofold.…

Inverse problems are in many cases solved with optimization techniques. When the underlying model is linear, first-order gradient methods are usually sufficient. With nonlinear models, due to nonconvexity, one must often resort to…

Insider information and model uncertainty are two unavoidable problems for the portfolio selection theory in reality. This paper studies the robust optimal portfolio strategy for an investor who owns general insider information under model…

Valuation adjustments, collectively named XVA, play an important role in modern derivatives pricing to take into account additional price components such as counterparty and funding risk premia. They are an exotic price component carrying a…

The discrete-time multifactor Vasi\v{c}ek model is a tractable Gaussian spot rate model. Typically, two- or three-factor versions allow one to capture the dependence structure between yields with different times to maturity in an…

In this paper we consider the pricing of options on interest rates such as caplets and swaptions in the L\'evy Libor model developed by Eberlein and \"Ozkan (2005). This model is an extension to L\'evy driving processes of the classical…

Precision matrix is of significant importance in a wide range of applications in multivariate analysis. This paper considers adaptive minimax estimation of sparse precision matrices in the high dimensional setting. Optimal rates of…

The aim of this paper is to propose a new methodology that allows forecasting, through Vasicek and CIR models, of future expected interest rates (for each maturity) based on rolling windows from observed financial market data. The novelty,…

We introduce a new framework for optimal routing and arbitrage in AMM driven markets. This framework improves on the original best-practice convex optimization by restricting the search to the boundary of the optimal space. We can…

The pricing of options, warrants and other derivative securities is one of the great success of financial economics. These financial products can be modeled and simulated using quantum mechanical instruments based on a Hamiltonian…

There are a number of situations where, when computing prices of financial derivatives using quasi-Monte Carlo (QMC), it turns out to be beneficial to apply an orthogonal transform to the standard normal input variables. Sometimes those…

We reformulate the Cavity Approximation (CA), a class of algorithms recently introduced for improving the Bethe approximation estimates of marginals in graphical models. In our new formulation, which allows for the treatment of multivalued…

In computational and applied statistics, it is of great interest to get fast and accurate calculation for the distributions of the quadratic forms of Gaussian random variables. This paper presents a novel approximation strategy that…

In this paper, we investigate the matrix estimation problem in the multi-response regression model with measurement errors. A nonconvex error-corrected estimator based on a combination of the amended loss function and the nuclear norm…

In this paper, we construct a Malliavin derivative for functionals of square-integrable L\'evy processes and derive a Clark-Ocone formula. The Malliavin derivative is defined via chaos expansions involving stochastic integrals with respect…

Multivariate normal (MVN) probabilities arise in myriad applications, but they are analytically intractable and need to be evaluated via Monte-Carlo-based numerical integration. For the state-of-the-art minimax exponential tilting (MET)…

Using classical Taylor series techniques, we develop a unified approach to pricing and implied volatility for European-style options in a general local-stochastic volatility setting. Our price approximations require only a normal CDF and…