Related papers: Temporal Volatility Surface Projection: Parametric…
Options with maturities below one week, hereafter "ultra-short-term" options, have seen a sharp increase in trading activity in recent years. Yet, these instruments are difficult to price jointly using classical pricing models due to the…
Local volatility is an important quantity in option pricing, portfolio hedging, and risk management. It is not directly observable from the market; hence calibrations of local volatility models are necessary using observable market data.…
The paper studies derivative asset analysis in structural credit risk models where the asset value of the firm is not fully observable. It is shown that in order to compute the price dynamics of traded securities one needs to solve a…
This paper extends an option-theoretic approach to estimate liquidity spreads for corporate bonds. Inspired by Longstaff's equity market framework and subsequent work by Koziol and Sauerbier on risk-free zero-coupon bonds, the model views…
We study the temporal fluctuations in time-dependent stock prices (both individual and composite) as a stochastic phenomenon using general techniques and methods of nonequilibrium statistical mechanics. In particular, we analyze stock price…
Predicting volatility is important for asset predicting, option pricing and hedging strategies because it cannot be directly observed in the financial market. The Black-Scholes option pricing model is one of the most widely used models by…
The paper concerns primal and dual representations as well as time consistency of set-valued dynamic risk measures. Set-valued risk measures appear naturally when markets with transaction costs are considered and capital requirements can be…
We provide a mathematical definition of fragility and antifragility as negative or positive sensitivity to a semi-measure of dispersion and volatility (a variant of negative or positive "vega") and examine the link to nonlinear effects. We…
In a stochastic volatility framework, we find a general pricing equation for the class of payoffs depending on the terminal value of a market asset and its final quadratic variation. This allows a pricing tool for European-style claims…
This study delves into the temporal dynamics within the equity market through the lens of bond traders. Recognizing that the riskless interest rate fluctuates over time, we leverage the Black-Derman-Toy model to trace its temporal…
The mean-variance portfolio model, based on the risk-return trade-off for optimal asset allocation, remains foundational in portfolio optimization. However, its reliance on restrictive assumptions about asset return distributions limits its…
We study the risk assessment of uncertain cash flows in terms of dynamic convex risk measures for processes as introduced in Cheridito, Delbaen, and Kupper (2006). These risk measures take into account not only the amounts but also the…
This paper proposes a semiparametric stochastic volatility (SV) model that relaxes the restrictive Gaussian assumption in both the return and volatility error terms, allowing them to follow flexible, nonparametric distributions with…
In the market place, diversification reduces risk and provides protection against extreme events by ensuring that one is not overly exposed to individual occurrences. We argue that diversification is best measured by characteristics of the…
Model uncertainty is a type of inevitable financial risk. Mistakes on the choice of pricing model may cause great financial losses. In this paper we investigate financial markets with mean-volatility uncertainty. Models for stock markets…
Volatility forecasting becomes challenging when market conditions shift and model performance varies across market states. Motivated by this instability, we develop a risk-sensitive specialist routing framework for ETF volatility…
In real-world decision-making problems, for instance in the fields of finance, robotics or autonomous driving, keeping uncertainty under control is as important as maximizing expected returns. Risk aversion has been addressed in the…
This paper considers the mean variance portfolio management problem. We examine portfolios which contain both primary and derivative securities. The challenge in this context is due to portfolio's nonlinearities. The delta-gamma…
We show how one can actually take advantage of the strongly non-Gaussian nature of the fluctuations of financial assets to simplify the calculation of the Value-at-Risk of complex non linear portfolios. The resulting equations are not hard…
We study the problem of forecasting volatility for the multifractal random walk model. In order to avoid the ill posed problem of estimating the correlation length T of the model, we introduce a limiting object defined in a quotient space;…