Related papers: Pricing Quanto and Composite Contracts with Local-…
We present a general derivation of the arbitrage-free pricing framework for multiple-currency collateralized products. We include the impact on option pricing of the policy adopted to fund in foreign currency, so that we are able to price…
We present an algorithm for the calibration of local volatility from market option prices through deep self-consistent learning, by approximating both market option prices and local volatility using deep neural networks. Our method uses the…
We price European-style options written on forward contracts in a commodity market, which we model with an infinite-dimensional Heath-Jarrow-Morton (HJM) approach. For this purpose we introduce a new class of state-dependent volatility…
We consider stochastic volatility models using piecewise constant parameters. We suggest a hybrid optimization algorithm for fitting the models to a volatility surface and provide some numerical results. Finally, we provide an outlook on…
Local volatility is a versatile option pricing model due to its state dependent diffusion coefficient. Calibration is, however, non-trivial as it involves both proposing a hypothesis model of the latent function and a method for fitting it…
Financial derivative pricing is a significant challenge in finance, involving the valuation of instruments like options based on underlying assets. While some cases have simple solutions, many require complex classical computational methods…
The literature on volatility modelling and option pricing is a large and diverse area due to its importance and applications. This paper provides a review of the most significant volatility models and option pricing methods, beginning with…
We present a stochastic-local volatility model for derivative contracts on commodity futures able to describe forward-curve and smile dynamics with a fast calibration to liquid market quotes. A parsimonious parametrization is introduced to…
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…
We examine a general multi-factor model for commodity spot prices and futures valuation. We extend the multi-factor long-short model in Schwartz and Smith (2000) and Yan (2002) in two important aspects: firstly we allow for both the long…
Convergence (virtual) bidding is an important part of two-settlement electric power markets as it can effectively reduce discrepancies between the day-ahead and real-time markets. Consequently, there is extensive research into the bidding…
In this paper, we model financial markets with semi-Markov volatilities and price covarinace and correlation swaps for this markets. Numerical evaluations of vari- nace, volatility, covarinace and correlations swaps with semi-Markov…
This paper studies a valuation framework for financial contracts subject to reference and counterparty default risks with collateralization requirement. We propose a fixed point approach to analyze the mark-to-market contract value with…
We propose a novel and generic calibration technique for four-factor foreign-exchange hybrid local-stochastic volatility models with stochastic short rates. We build upon the particle method introduced by Guyon and Labord\`ere [Nonlinear…
In order to overcome the drawbacks of assuming deterministic volatility coefficients in the standard LIBOR market models to capture volatility smiles and skews in real markets, several extensions of LIBOR models to incorporate stochastic…
Applications of the quantum algorithm for Monte Carlo simulation to pricing of financial derivatives have been discussed in previous papers. However, up to now, the pricing model discussed in such papers is Black-Scholes model, which is…
Weighted Monte Carlo prices exotic options calibrating the probabilities of previously generated paths by a regular Monte Carlo to fit a set of option premiums. When only vanilla call and put options and forward prices are considered, the…
Recent empirical evidence has highlighted the crucial role of jumps in both price and volatility within the cryptocurrency market. In this paper, we integrate price--volatility co-jumps and volatility short-term dependency into a coherent…
We consider a novel use case for the Double Heston model (Christoffersen et al,, 2009), where the two Heston sub-variances have different spot/volatility correlations but the same volatility of volatility and mean reversion speed. This…
Forecast combination -- the aggregation of individual forecasts from multiple experts or models -- is a proven approach to economic forecasting. To date, research on economic forecasting has concentrated on local combination methods, which…