Related papers: Alternatives to classical option pricing
Double no-touch options, contracts which pay out a fixed amount provided an underlying asset remains within a given interval, are commonly traded, particularly in FX markets. In this work, we establish model-free bounds on the price of…
The approach that allows find European option price on the assumption of hedging at discrete times is proposed. The routine allows find the option price not for lognormal distribution functions of underlying asset only but for wide enough…
Options are financial instruments that depend on the underlying stock. We explain their non-Gaussian fluctuations using the nonextensive thermodynamics parameter $q$. A generalized form of the Black-Scholes (B-S) partial differential…
We consider the pricing and hedging of exotic options in a model-independent set-up using \emph{shortfall risk and quantiles}. We assume that the marginal distributions at certain times are given. This is tantamount to calibrating the model…
We consider option pricing using replicating binomial trees, with a two fold purpose. The first is to introduce ESG valuation into option pricing. We explore this in a number of scenarios, including enhancement of yield due to trader…
We study the range of prices at which a rational agent should contemplate transacting a financial contract outside a given securities market. Trading is subject to nonproportional transaction costs and portfolio constraints and full…
We derive behavioral finance option pricing formulas consistent with the rational dynamic asset pricing theory. In the existing behavioral finance option pricing formulas, the price process of the representative agent is not a…
A financial market model where agents trade using realistic combinations of buy-and-hold strategies is considered. Minimal assumptions are made on the discounted asset-price process - in particular, the semimartingale property is not…
We investigate qualitative and quantitative behavior of a solution of the mathematical model for pricing American style of perpetual put options. We assume the option price is a solution to the stationary generalized Black-Scholes equation…
We provide a model-free pricing-hedging duality in continuous time. For a frictionless market consisting of $d$ risky assets with continuous price trajectories, we show that the purely analytic problem of finding the minimal superhedging…
Random-expiry options are nontraditional derivative contracts that may expire early based on a random event. We develop a methodology for pricing these options using a trinomial tree, where the middle path is interpreted as early expiry. We…
We show how the prices of options can be determined with the help of double-fractional differential equation in such a way that their inclusion in a portfolio of stocks provides a more reliable hedge against dramatic price drops that the…
This paper presents a new model for options pricing. The Black-Scholes-Merton (BSM) model plays an important role in financial options pricing. However, the BSM model assumes that the risk-free interest rate, volatility, and equity premium…
In this work we consider three problems of the standard market approach to pricing of credit index options: the definition of the index spread is not valid in general, the usually considered payoff leads to a pricing which is not always…
The paper develops a new class of financial market models. These models are based on generalized telegraph processes: Markov random flows with alternating velocities and jumps occurring when the velocities are switching. While such markets…
We consider the pricing of derivatives written on the discretely sampled realized variance of an underlying security. In the literature, the realized variance is usually approximated by its continuous-time limit, the quadratic variation of…
This paper formulates a model of utility for a continuous time framework that captures the decision-maker's concern with ambiguity about both volatility and drift. Corresponding extensions of some basic results in asset pricing theory are…
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…
In this paper we consider the pricing of variable annuities (VAs) with guaranteed minimum withdrawal benefits. We consider two pricing approaches, the classical risk-neutral approach and the benchmark approach, and we examine the associated…
We introduce a new model for pricing corporate bonds, which is a modification of the classical model of Merton. In this new model, we drop the liquidity assumption of the firm's asset value process, and assume that there is a liquidly…