Related papers: Calibration and Option Pricing with Stochastic Vol…
We study the pricing of European-style options written on forward contracts within function-valued infinite-dimensional affine stochastic volatility models. The dynamics of the underlying forward price curves are modeled within the…
We study the pricing problem for a European call option when the volatility of the underlying asset is random and follows the exponential Ornstein-Uhlenbeck model. The random diffusion model proposed is a two-dimensional market process that…
We describe a model for evolving commodity forward prices that incorporates three important dynamics which appear in many commodity markets: mean reversion in spot prices and the resulting Samuelson effect on volatility term structure,…
A major drawback of the Standard Heston model is that its implied volatility surface does not produce a steep enough smile when looking at short maturities. For that reason, we introduce the Stationary Heston model where we replace the…
In this paper we consider a jump-diffusion dynamic whose parameters are driven by a continuous time and stationary Markov Chain on a finite state space as a model for the underlying of European contingent claims. For this class of processes…
Jumps and market microstructure noise are stylized features of high-frequency financial data. It is well known that they introduce bias in the estimation of volatility (including integrated and spot volatilities) of assets, and many methods…
Volatility modelling has become a significant area of research within Financial Mathematics. Wiener process driven stochastic volatility models have become popular due their consistency with theoretical arguments and empirical observations.…
This article proposes a calibration framework for complex option pricing models that jointly fits market option prices and the term structure of variance. Calibrated models under the conventional objective function, the sum of squared…
The paper proposes a class of financial market models which are based on inhomogeneous telegraph processes and jump diffusions with alternating volatilities. It is assumed that the jumps occur when the tendencies and volatilities are…
In this paper we propose a semi-analytic approach to pricing American options for time-dependent jump-diffusions models with exponential jumps The idea of the method is to further generalize our approach developed for pricing barrier,…
We present a detailed analysis and implementation of a splitting strategy to identify simultaneously the local-volatility surface and the jump-size distribution from quoted European prices. The underlying model consists of a jump-diffusion…
In some options markets (e.g. commodities), options are listed with only a single maturity for each underlying. In others, (e.g. equities, currencies), options are listed with multiple maturities. In this paper, we provide an algorithm for…
In the first part of this thesis, we focus on American options in the Heston model. We first give an analytical characterization of the value function of an American option as the unique solution of the associated (degenerate) parabolic…
Pricing and hedging exotic options using local stochastic volatility models drew a serious attention within the last decade, and nowadays became almost a standard approach to this problem. In this paper we show how this framework could be…
We provide a general probabilistic framework within which we establish scaling limits for a class of continuous-time stochastic volatility models with self-exciting jump dynamics. In the scaling limit, the joint dynamics of asset returns…
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…
In mathematical finance, a process of calibrating stochastic volatility (SV) option pricing models to real market data involves a numerical calculation of integrals that depend on several model parameters. This optimization task consists of…
A new theory for pricing options of a stock is presented. It is based on the assumption that while successive variations in return are uncorrelated, the frequency with which a stock is traded depends on the value of the return. The solution…
Most of the empirical studies on stochastic volatility dynamics favor the 3/2 specification over the square-root (CIR) process in the Heston model. In the context of option pricing, the 3/2 stochastic volatility model is reported to be able…
This paper studies the pricing of European-style Asian options when the price dynamics of the underlying risky asset are assumed to follow a Markov- modulated geometric Brownian motion; that is, the appreciation rate and the volatility of…