Related papers: Risk-Neutral Pricing of Random-Expiry Options Usin…
We study the influence of additional intermediate marginal distributions on the value of the martingale optimal transport problem. From a financial point of view, this corresponds to taking into account call option prices not only, as…
This paper considers exponential utility indifference pricing for a multidimensional non-traded assets model subject to inter-temporal default risk, and provides a semigroup approximation for the utility indifference price. The key tool is…
The vast majority of works on option pricing operate on the assumption of risk neutral valuation, and consequently focus on the expected value of option returns, and do not consider risk parameters, such as variance. We show that it is…
The variance gamma model is a widely popular model for option pricing in both academia and industry. In this paper, we provide a new perspective for pricing European style options for the variance gamma model by deriving closed-form…
In the present paper we present a finite element approach for option pricing in the framework of a well-known stochastic volatility model with jumps, the Bates model. In this model the asset log-returns are assumed to follow a…
The aim of this paper is to present a simple stochastic model that accounts for the effects of a long-memory in volatility on option pricing. The starting point is the stochastic Black-Scholes equation involving volatility with long-range…
Reliability Options are capacity remuneration mechanisms aimed at enhancing security of supply in electricity systems. They can be framed as call options on electricity sold by power producers to System Operators. This paper provides a…
The pricing and hedging of a general class of options (including American, Bermudan and European options) on multiple assets are studied in the context of currency markets where trading is subject to proportional transaction costs, and…
We show how a retailer can estimate the optimal price of a new product using observed transaction prices from online second-price auction experiments. For this purpose we propose a Bayesian P\'olya tree approach which, given the limited…
In this paper, we present a data-driven ensemble approach for option price prediction whose derivation is based on the no-arbitrage theory of option pricing. Using the theoretical treatment, we derive a common representation space for…
In this work we prove decidability of the model-checking problem for safe recursion schemes against properties defined by alternating B-automata. We then exploit this result to show how to compute downward closures of languages of finite…
A statistical decision problem is hidden in the core of option pricing. A simple form for the price C of a European call option is obtained via the minimum Bayes risk, R_B, of a 2-parameter estimation problem, thus justifying calling C…
We develop an arbitrage-free random field LIBOR market model to price cross-currency derivatives. The uncertainty of the forward LIBOR rates of our cross-currency model is driven by a two time parameter random field instead of a finite…
This article considers the pricing and hedging of a call option when liquidity matters, that is, either for a large nominal or for an illiquid underlying asset. In practice, as opposed to the classical assumptions of a price-taking agent in…
We consider call option prices in diffusion models close to expiry, in an asymptotic regime ("moderately out of the money") that interpolates between the well-studied cases of at-the-money options and out-of-the-money fixed-strike options.…
Existing approaches to asset-pricing under model-uncertainty adapt classical utility-maximization frameworks and seek theoretical comprehensiveness. We move toward practice by considering binary model-risks and by emphasizing 'constraints'…
This paper considers the pricing of equity-linked life insurance contracts with death and survival benefits in a general model with multiple stochastic risk factors: interest rate, equity, volatility, unsystematic and systematic mortality.…
In this paper, we derive the price of a European call option of an asset following a normal process assuming stochastic volatility. The volatility is assumed to follow the Cox Ingersoll Ross (CIR) process. We then use the fast Fourier…
We revisit the problem of pricing options with historical volatility estimators. We do this in the context of a generalized GARCH model with multiple time scales and asymmetry. It is argued that the reason for the observed volatility risk…
This paper presents a derivation of the explicit price for the perpetual American put option in the Black-Scholes model, time-capped by the first drawdown epoch beyond a predefined level. We demonstrate that the optimal exercise strategy…