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In this paper we propose a new model for pricing stock and dividend derivatives. We jointly specify dynamics for the stock price and the dividend rate such that the stock price is positive and the dividend rate non-negative. In its simplest…
We propose a model for an insurance loss index and the claims process of a single insurance company holding a fraction of the total number of contracts that captures both ordinary losses and losses due to catastrophes. In this model we…
This paper investigates how the conditional quantiles of future returns and volatility of financial assets vary with various measures of ex-post variation in asset prices as well as option-implied volatility. We work in the flexible…
The pricing of options, warrants and other derivative securities is one of the great success of financial economics. These financial products can be modeled and simulated using quantum mechanical instruments based on a Hamiltonian…
Local volatility models usually capture the surface of implied volatilities more accurately than other approaches, such as stochastic volatility models. We present the results of application of Monte Carlo (MC) and Quasi Monte Carlo (QMC)…
In a market with transaction costs, the price of a derivative can be expressed in terms of (preconsistent) price systems (after Kusuoka (1995)). In this paper, we consider a market with binomial model for stock price and discuss how to…
In this paper we study dynamic pricing mechanisms of financial derivatives. A typical model of such pricing mechanism is the so-called g--expectation defined by solutions of a backward stochastic differential equation with g as its…
Derivative traders are usually required to scan through hundreds, even thousands of possible trades on a daily basis. Up to now, not a single solution is available to aid in their job. Hence, this work aims to develop a trading…
We consider stochastic volatility models under parameter uncertainty and investigate how model derived prices of European options are affected. We let the pricing parameters evolve dynamically in time within a specified region, and…
Accurate crude oil price forecasting is crucial for various economic activities, including energy trading, risk management, and investment planning. Although deep learning models have emerged as powerful tools for crude oil price…
The pricing of financial derivatives, which requires massive calculations and close-to-real-time operations under many trading and arbitrage scenarios, were largely infeasible in the past. However, with the advancement of modern computing,…
This paper introduces a novel methodology for the pricing and management of share buyback contracts, overcoming the limitations of traditional optimal control methods, which frequently encounter difficulties with high-dimensional state…
We develop a methodology for index tracking and risk exposure control using financial derivatives. Under a continuous-time diffusion framework for price evolution, we present a pathwise approach to construct dynamic portfolios of…
We discuss two numerical methods, based on a path integral approach described in a previous paper (I), for solving the stochastic equations underlying the financial markets: the Monte Carlo approach, and the Green function deterministic…
This paper analyzes the pricing of collateralized derivatives, i.e. contracts where counterparties are not only subject to financial derivatives cash flows but also to collateral cash flows arising from a collateral agreement. We do this…
We show how inter-asset dependence information derived from market prices of options can lead to improved model-free price bounds for multi-asset derivatives. Depending on the type of the traded option, we either extract correlation…
In this paper, we consider the pricing and hedging of a financial derivative for an insider trader, in a model-independent setting. In particular, we suppose that the insider wants to act in a way which is independent of any modelling…
This paper is devoted to the price-storage dynamics in natural gas markets. A novel stochastic path-dependent volatility model is introduced with path-dependence in both price volatility and storage increments. Model calibrations are…
We propose a model which can be jointly calibrated to the corporate bond term structure and equity option volatility surface of the same company. Our purpose is to obtain explicit bond and equity option pricing formulas that can be…
Derivatives on the Chicago Board Options Exchange volatility index (VIX) have gained significant popularity over the last decade. The pricing of VIX derivatives involves evaluating the square root of the expected realised variance which…