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This paper develops a European option pricing formula for fractional market models. Although there exist option pricing results for a fractional Black-Scholes model, they are established without accounting for stochastic volatility. In this…
We present an approach for pricing European call options in presence of proportional transaction costs, when the stock price follows a general exponential L\'{e}vy process. The model is a generalization of the celebrated work of Davis,…
Option pricing formulas are derived from a non-Gaussian model of stock returns. Fluctuations are assumed to evolve according to a nonlinear Fokker-Planck equation which maximizes the Tsallis nonextensive entropy of index $q$. A generalized…
Classical solvable stochastic volatility models (SVM) use a CEV process for instantaneous variance where the CEV parameter $\gamma$ takes just few values: 0 - the Ornstein-Uhlenbeck process, 1/2 - the Heston (or square root) process, 1-…
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 papers addresses the stock option pricing problem in a continuous time market model where there are two stochastic tradable assets, and one of them is selected as a num\'eraire. It is shown that the presence of arbitrarily small…
We present an option pricing formula for European options in a stochastic volatility model. In particular, the volatility process is defined using a fractional integral of a diffusion process and both the stock price and the volatility…
In this paper, we study option pricing under Vasicek Model by a Hamiltonian approach. Since the interest rate changes with time, we split the time to maturity into infinite steps, and the matrix element during each step could be calculated…
We consider a stochastic volatility model with jumps where the underlying asset price is driven by the process sum of a 2-dimensional Brownian motion and a 2-dimensional compensated Poisson process. The market is incomplete, resulting in…
We propose a general framework of European power option pricing under two different market assumptions about extended Vasic\v{e}k interest rate process and exponential Ornstein-Uhlenbeck asset process with continuous dividend as underlying,…
We develop an entropic framework to model the dynamics of stocks and European Options. Entropic inference is an inductive inference framework equipped with proper tools to handle situations where incomplete information is available. The…
Using tools from spectral analysis, singular and regular perturbation theory, we develop a systematic method for analytically computing the approximate price of a derivative-asset. The payoff of the derivative-asset may be path-dependent.…
We present a model of financial markets originally proposed for a turbulent flow, as a dynamic basis of its intermittent behavior. Time evolution of the price change is assumed to be described by Brownian motion in a power-law potential,…
In the option valuation literature, the shortcomings of one factor stochastic volatility models have traditionally been addressed by adding jumps to the stock price process. An alternate approach in the context of option pricing and…
The variational method of coupled Gaussian functions is applied to Bose-Einstein condensates with long-range interactions. The time-dependence of the condensate is described by dynamical equations for the variational parameters. We present…
In this paper, we give a numerical method for pricing long maturity, path dependent options by using the Markov property for each underlying asset. This enables us to approximate a path dependent option by using some kinds of plain…
In this article we look at stochastic processes with uncertain parameters, and consider different ways in which information is obtained when carrying out observations. For example we focus on the case of a the random evolution of a traded…
In previous works Avellaneda et al. pioneered the pricing and hedging of index options - products highly sensitive to implied volatility and correlation assumptions - with large deviations methods, assuming local volatility dynamics for all…
To define oscillatory movements of securities market, we put in the non-local extension of Ito- equation for wavelet-images of random processes. It is proposed an algorithm of creation of evolutionary equation and a model of prediction of…
A variational framework is defined for vertical slice models with three dimensional velocity depending only on x and z. The models that result from this framework are Hamiltonian, and have a Kelvin-Noether circulation theorem that results…