Related papers: Option Pricing for the Variance Gamma Model: A New…
To pricing health insurance plan, statisticians use mathematical models to predict customers' future health condition. General Addictive Model (GAM) is a wide accepted method for this problem. However, it have several limitations. To solve…
Option contracts can be valued by using the Black-Scholes equation, a partial differential equation with initial conditions. An exact solution for European style options is known. The computation time and the error need to be minimized…
Perpetual American options are financial instruments that can be readily exercised and do not mature. In this paper we study in detail the problem of pricing this kind of derivatives, for the most popular flavour, within a framework in…
We consider the problem of valuation of American options written on dividend-paying assets whose price dynamics follows a multidimensional exponential Levy model. We carefully examine the relation between the option prices, related partial…
The problem of determining the European-style option price in the incomplete market has been examined within the framework of stochastic optimization. An analytic method based on the discrete dynamic programming equation (Bellman equation)…
Semi-analytical pricing of American options in a time-dependent Ornstein-Uhlenbeck model was presented in [Carr, Itkin, 2020]. It was shown that to obtain these prices one needs to solve (numerically) a nonlinear Volterra integral equation…
Options on baskets (linear combinations) of assets are notoriously challenging to price using even the simplest log-normal continuous-time stochastic models for the individual assets. The paper [5] gives a closed form approximation formula…
We present a multivariate stochastic volatility model with leverage, which is flexible enough to recapture the individual dynamics as well as the interdependencies between several assets while still being highly analytically tractable.…
In this paper, we introduce two novel methods to solve the American-style option pricing problem and its dual form at the same time using neural networks. Without applying nested Monte Carlo, the first method uses a series of neural…
We propose a fast and accurate numerical method for pricing European swaptions in multi-factor Gaussian term structure models. Our method can be used to accelerate the calibration of such models to the volatility surface. The pricing of an…
We develop a model for indifference pricing in derivatives markets where price quotes have bid-ask spreads and finite quantities. The model quantifies the dependence of the prices and hedging portfolios on an investor's beliefs, risk…
We suggest an intermediate currency approach that allows us to price options on all FX markets simultaneously under the same risk-neutral measure which ensures consistency of FX option prices across all markets. In particular, it is…
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…
This study deals with the problem of pricing European currency options in discrete time setting, whose prices follow the fractional Black Scholes model with transaction costs. Both the pricing formula and the fractional partial differential…
This work introduces a novel approach to price rainbow options, a type of path-independent multi-asset derivatives, with quantum computers. Leveraging the Iterative Quantum Amplitude Estimation method, we present an end-to-end quantum…
In this paper we study the pricing of exchange options when underlying assets have stochastic volatility and stochastic correlation. An approximation using a closed-form approximation based on a Taylor expansion of the conditional price is…
We propose a neural network approach to price EU call options that significantly outperforms some existing pricing models and comes with guarantees that its predictions are economically reasonable. To achieve this, we introduce a class of…
We introduce a new model of financial market with stochastic volatility driven by an arbitrary H\"older continuous Gaussian Volterra process. The distinguishing feature of the model is the form of the volatility equation which ensures the…
We propose a new `hedged' Monte-Carlo (HMC) method to price financial derivatives, which allows to determine simultaneously the optimal hedge. The inclusion of the optimal hedging strategy allows one to reduce the financial risk associated…
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…