Related papers: Risk premium and rough volatility

We introduce a modular framework that extends the signature method to handle American option pricing under evolving volatility roughness. Building on the signature-pricing framework of Bayer et al. (2025), we add three practical…

This paper advances interest rate modeling in the post-LIBOR era by introducing rough stochastic volatility into the Forward Market Model (FMM). We establish a rigorous asymptotic expansion of swaption implied volatility, connecting the FMM…

We define what "Price Impact" means, and how it is measured and modelled in the recent literature. Although this notion seems to convey the idea of a forceful and intuitive mechanism, we discuss why things might not be that simple.…

We consider rough stochastic volatility models where the driving noise of volatility has fractional scaling, in the "rough" regime of Hurst parameter $H < 1/2$. This regime recently attracted a lot of attention both from the statistical and…

We propose a method to assess the intrinsic risk carried by a financial position $X$ when the agent faces uncertainty about the pricing rule assigning its present value. Our approach is inspired by a new interpretation of the quasiconvex…

In this paper, we propose an equilibrium pricing model in a dynamic multi-period stochastic framework with uncertain income streams. In an incomplete market, there exist two traded risky assets (e.g. stock/commodity and weather derivative)…

Estimating and controlling large risks has become one of the main concern of financial institutions. This requires the development of adequate statistical models and theoretical tools (which go beyond the traditionnal theories based on…

Trading a financial asset pushes its price as well as the prices of other assets, a phenomenon known as cross-impact. The empirical estimation of this effect on complex financial instruments, such as derivatives, is an open problem. To…

Frailty and resilience models provide a way to introduce random effects in hazard and reversed hazard rate modeling by random variables, called frailty and resilience random variables, respectively, to account for unobserved or unexplained…

What is the dominating mechanism of the price dynamics in financial systems is of great interest to scientists. The problem whether and how volatilities affect the price movement draws much attention. Although many efforts have been made,…

We present a detailed analysis of interest rate derivatives valuation under credit risk and collateral modeling. We show how the credit and collateral extended valuation framework in Pallavicini et al (2011), and the related collateralized…

Model uncertainty has been one prominent issue both in the theory of risk measures and in practice such as financial risk management and regulation. Motivated by this observation, in this paper, we take a new perspective to describe the…

We consider a discrete-time model of a financial market where a risky asset is bought and sold with transactions having a transient price impact. It is shown that the corresponding utility maximization problem admits a solution. We manage…

This paper focuses on the pricing of the variance swap in an incomplete market where the stochastic interest rate and the price of the stock are respectively driven by Cox-Ingersoll-Ross model and Heston model with simultaneous L\'{e}vy…

Volatility measures the amplitude of price fluctuations. Despite it is one of the most important quantities in finance, volatility is not directly observable. Here we apply a maximum likelihood method which assumes that price and volatility…

This paper presents a new model for pricing financial derivatives subject to collateralization. It allows for collateral arrangements adhering to bankruptcy laws. As such, the model can back out the market price of a collateralized…

This paper assumes that the randomness of market trade values and volumes determines the properties of stochastic market prices. We derive the direct dependence of the first two price statistical moments and price volatility on statistical…

In this paper, we propose the uncertain volatility models with stochastic bounds. Like the regular uncertain volatility models, we know only that the true model lies in a family of progressively measurable and bounded processes, but instead…

We describe the pricing and hedging of financial options without the use of probability using rough paths. By encoding the volatility of assets in an enhancement of the price trajectory, we give a pathwise presentation of the replication of…

Recent empirical studies suggest that the volatility of an underlying price process may have correlations that decay slowly under certain market conditions. In this paper, the volatility is modeled as a stationary process with long-range…