Related papers: Pricing under the Benchmark Approach
Under a generalized skew normal distribution we consider the problem of European option pricing. Existence of the martingale measure is proved. An explicit expression for a given European option price is presented in terms of the cumulative…
Using a suitable change of probability measure, we obtain a novel Poisson series representation for the arbitrage- free price process of vulnerable contingent claims in a regime-switching market driven by an underlying continuous- time…
In this paper, we study a game with positive or plus infinite expectation and determine the optimal proportion of investment for maximizing the limit expectation of growth rate per attempt. With this objective, we introduce a new pricing…
We consider robust pricing and hedging for options written on multiple assets given market option prices for the individual assets. The resulting problem is called the multi-marginal martingale optimal transport problem. We propose two…
The Black-Scholes model (sometimes known as the Black-Scholes-Merton model) gives a theoretical estimate for the price of European options. The price evolution under this model is described by the Black-Scholes formula, one of the most…
This work considers a stochastic model in which the uncertainty is driven by a multidimensional Brownian motion. The market price of risk process makes the transition between real world probability measure and risk neutral probability…
In this note, we develop stock option price approximations for a model which takes both the risk o default and the stochastic volatility into account. We also let the intensity of defaults be influenced by the volatility. We show that it…
In this article, a compact finite difference method is proposed for pricing European and American options under jump-diffusion models. Partial integro-differential equation and linear complementary problem governing European and American…
We propose a method for pricing American options whose pay-off depends on the moving average of the underlying asset price. The method uses a finite dimensional approximation of the infinite-dimensional dynamics of the moving average…
We develop a novel deep learning approach for pricing European options in diffusion models, that can efficiently handle high-dimensional problems resulting from Markovian approximations of rough volatility models. The option pricing partial…
The paper is devoted to modeling optimal exercise strategies of the behavior of investors and issuers working with convertible bonds. This implies solution of the problems of stock price modeling, payoff computation and min-max…
This paper mainly discusses the American option's hedging strategies via binomialmodel and the basic idea of pricing and hedging American option. Although the essential scheme of hedging is almost the same as European option, small…
We model the price of a stock via a Lang\'{e}vin equation with multi-dimensional fluctuations coupled in the price and in time. We generalize previous models in that we assume that the fluctuations conditioned on the time step are compound…
The paper investigates the performance of the European option price when the log asset price follows a rich class of Generalized Tempered Stable (GTS) distribution. The GTS distribution is an alternative to Normal distribution and…
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 study the problem of active portfolio management where an investor aims to outperform a benchmark strategy's risk profile while not deviating too far from it. Specifically, an investor considers alternative strategies whose terminal…
In this article we develop an explicit formula for pricing European options when the underlying stock price follows a non-linear stochastic differential delay equation (sdde). We believe that the proposed model is sufficiently flexible to…
This paper presents a multinomial method for option pricing when the underlying asset follows an exponential Variance Gamma process. The continuous time Variance Gamma process is approximated by a discrete time Markov chain with the same…
We provide an European option pricing formula written in the form of an infinite series of Black Scholes type terms under double Levy jumps model, where both the interest rate and underlying price are driven by Levy process. The series…
We provide a lean, non-technical exposition on the pricing of path-dependent and European-style derivatives in the Cox-Ross-Rubinstein (CRR) pricing model. The main tool used in the paper for cleaning up the reasoning is applying static…