Related papers: Asian option valuation under price impact
An analytic method for pricing American call options is provided; followed by an empirical method for pricing Asian call options. The methodology is the pricing theory presented in "A Modern Theory of Random Variation", by Patrick…
We study hedging and pricing of unattainable contingent claims in a non-Markovian regime-switching financial model. Our financial market consists of a bank account and a risky asset whose dynamics are driven by a Brownian motion and a…
We develop a model for indifference pricing in derivatives markets where price quotes have bid-ask spreads and finite quantities. The model quantifies the dependence of the prices and hedging portfolios on an investor's beliefs, risk…
Dealers in foreign exchange markets provide bid and ask prices to their clients at which they are happy to buy and sell, respectively. To manage risk, dealers can skew their quotes and hedge in the interbank market. Hedging offers certainty…
In this paper we introduce a completely continuous and time-variate model of the evolution of market limit orders based on the existence, uniqueness, and regularity of the solutions to a type of stochastic partial differential equations…
The mixed fractional Brownian motion ($mfBm$) has become quite popular in finance, since it allows one to model long-range dependence and self-similarity while remaining, for certain values of the Hurst parameter, arbitrage-free. In the…
We introduce a first theory of price impact in presence of an interest-rates term structure. We explain how one can formulate instantaneous and transient price impact on bonds with different maturities, including a cross price impact that…
We describe general multilevel Monte Carlo methods that estimate the price of an Asian option monitored at $m$ fixed dates. Our approach yields unbiased estimators with standard deviation $O(\epsilon)$ in $O(m + (1/\epsilon)^{2})$ expected…
In this paper we study the short-time behavior of the at-the-money implied volatility for arithmetic Asian options with fixed strike price. The asset price is assumed to follow the Black-Scholes model with a general stochastic volatility…
This paper studies value iteration for infinite horizon contracting Markov decision processes under convexity assumptions and when the state space is uncountable. The original value iteration is replaced with a more tractable form and the…
Cai, Song and Kou (2015) [Cai, N., Y. Song, S. Kou (2015) A general framework for pricing Asian options under Markov processes. Oper. Res. 63(3): 540-554] made a breakthrough by proposing a general framework for pricing both discretely and…
In this work we consider three problems of the standard market approach to pricing of credit index options: the definition of the index spread is not valid in general, the usually considered payoff leads to a pricing which is not always…
The problem of determining the European-style option price in the incomplete market has been examined within the framework of stochastic optimization. An analytic method based on the discrete dynamic programming equation (Bellman equation)…
Under the assumption of no-arbitrage, the pricing of American and Bermudan options can be casted into optimal stopping problems. We propose a new adaptive simulation based algorithm for the numerical solution of optimal stopping problems in…
In this paper we analytically study the problem of pricing an arithmetically averaged Asian option in the path integral formalism. By a trick about the Dirac delta function, the measure of the path integral is defined by an effective action…
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…
We study overpricing in a repeated game between two representative agents: a market maker, who controls market liquidity, and a market taker, who chooses trade quantities. Market prices evolve through the endogenous price impact of trades…
We develop a theory for the market impact of large trading orders, which we call metaorders because they are typically split into small pieces and executed incrementally. Market impact is empirically observed to be a concave function of…
We solve the problem of super-hedging European or Asian options for discrete-time financial market models where executable prices are uncertain. The risky asset prices are not described by single-valued processes but measurable selections…
We develop a theoretical framework that aims to link micro-level option hedging and stock-specific factor exposure with macro-level market turbulence and explain endogenous volatility amplification during gamma-squeeze events. By explicitly…