Related papers: Binary Tree Option Pricing Under Market Microstruc…
This paper explores the effectiveness of high-frequency options trading strategies enhanced by advanced portfolio optimization techniques, investigating their ability to consistently generate positive returns compared to traditional long or…
The paper studies sub and super-replication price bounds for contingent claims defined on general trajectory based market models. No prior probabilistic or topological assumptions are placed on the trajectory space, trading is assumed to…
Due to their power and ease of use, tree-based machine learning models, such as random forests and gradient-boosted tree ensembles, have become very popular. To interpret them, local feature attributions based on marginal expectations, e.g.…
Standard supervised learning procedures are validated against a test set that is assumed to have come from the same distribution as the training data. However, in many problems, the test data may have come from a different distribution. We…
Tree-based algorithms such as random forests and gradient boosted trees continue to be among the most popular and powerful machine learning models used across multiple disciplines. The conventional wisdom of estimating the impact of a…
An efficient conditioning technique, the so-called Brownian Bridge simulation, has previously been applied to eliminate pricing bias that arises in applications of the standard discrete-time Monte Carlo method to evaluate options written on…
We introduce a random forest approach to enable spreads' prediction in the primary catastrophe bond market. We investigate whether all information provided to investors in the offering circular prior to a new issuance is equally important…
The theme in this paper is the recombining binomial tree to price American put option when the underlying stock follows constant elasticity of variance(CEV) process. Recombining nodes of binomial tree are decided from finite difference…
According to The Exchange Act, 1934 unlawful insider trading is the abuse of access to privileged corporate information. While a blurred line between "routine" the "opportunistic" insider trading exists, detection of strategies that…
Binomial trees are widely used in the financial sector for valuing securities with early exercise characteristics, such as American stock options. However, while effective in many scenarios, pricing options with CRR binomial trees are…
The aim of this paper is the analysis and selection of stock trading systems that combine different models with data of different nature, such as financial and microeconomic information. Specifically, based on previous work by the authors…
We show that the frequent claim that the implied tree prices exotic options consistently with the market is untrue if the local volatilities are subject to change and the market is arbitrage-free. In the process, we analyse -- in the most…
The availability of historical data related to electricity day-ahead prices and to the underlying price formation process is limited. In addition, the electricity market in Europe is facing a rapid transformation, which limits the…
Recent studies have revealed a number of striking dependence patterns in high frequency stock price dynamics characterizing probabilistic interrelation between two consequent price increments x (push) and y (response) as described by the…
Recombining trinomial trees are a workhorse for modeling discrete-event systems in option pricing, logistics, and feedback control. Because each node stores a state-dependent quantity, a depth-$D$ tree naively yields $\mathcal{O}(3^{D})$…
We develop a behavioral asset pricing model in which agents trade in a market with information friction. Profit-maximizing agents switch between trading strategies in response to dynamic market conditions. Due to noisy private information…
Using frequency distributions of daily closing price time series of several financial market indexes, we investigate whether the bias away from an equiprobable sequence distribution found in the data, predicted by algorithmic information…
Assuming that price of the underlying stock is moving in range bound, the Black-Scholes formula for options pricing supports a separation of variables. The resulting time-independent equation is solved employing different behavior of the…
This paper presents a new model for options pricing. The Black-Scholes-Merton (BSM) model plays an important role in financial options pricing. However, the BSM model assumes that the risk-free interest rate, volatility, and equity premium…
In this paper, we propose a novel methodology for pricing equity-indexed annuities featuring cliquet-style payoff structures and early surrender risk, using advanced financial modeling techniques. Specifically, the market is modeled by an…