Related papers: Option-Implied Zero-Coupon Yields: Unifying Bond a…
We present a general derivation of the arbitrage-free pricing framework for multiple-currency collateralized products. We include the impact on option pricing of the policy adopted to fund in foreign currency, so that we are able to price…
Geometry constitutes a core set of intuitions present in all humans, regardless of their language or schooling [1]. Could brain's built in machinery for processing geometric information take part in uncertainty representation? For decades…
We study two questions related to competition on the OTC CDS market using data collected as part of the EMIR regulation. First, we study the competition between central counterparties through collateral requirements. We present models that…
Classical asset pricing relies on the risk-neutral measure $Q$ for valuation, yet its economic interpretation is typically anchored in a physical measure $P$. This creates an inherent asymmetry: pricing is governed by $Q$, while meaning…
The paper summarizes key results of the benchmark approach with a focus on the concept of benchmark-neutral pricing. It applies these results to the pricing of an extreme-maturity European put option on a well-diversified stock index. The…
We present a deep learning framework for pricing options based on market-implied volatility surfaces. Using end-of-day S\&P 500 index options quotes from 2018-2023, we construct arbitrage-free volatility surfaces and generate training data…
We provide a systematic test of empirical theories of covalent bonding in solids using an exact procedure to invert ab initio cohesive energy curves. By considering multiple structures of the same material, it is possible for the first time…
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…
We propose a general framework for the simultaneous modeling of equity, government bonds, corporate bonds and derivatives. Uncertainty is generated by a general affine Markov process. The setting allows for stochastic volatility, jumps, the…
For valuing European options, a straightforward model is the well-known Black-Scholes formula. Contrary to market reality, this model assumed that interest rate and volatility are constant. To modify the Black-Scholes model, Heston and…
This paper examines how risk and budget limits on investment mandates affect the bidding strategy in a uniform-price auction for issuing corporate bonds. I prove the existence of symmetric Bayesian Nash equilibrium and explore how the risk…
In a market of deterministic cash flows, given as an additive, symmetric relation of exchangeability on the finite signed Borel measures on the non-negative real time axis, it is shown that the only arbitrage-free price functional that…
In this work, we consider the issue of pricing exchange options and spread options with stochastic interest rates. We provide the closed form solution for the exchange option price when interest rate is stochastic. Our result holds when…
Binomial tree methods (BTM) and explicit difference schemes (EDS) for the variational inequality model of American options with time dependent coefficients are studied. When volatility is time dependent, it is not reasonable to assume that…
SOFR derivatives market remains illiquid and incomplete so it is not amenable to classical risk-neutral term structure models which are based on the assumption of perfect liquidity and completeness. This paper develops a statistical SOFR…
A common assumption in financial engineering is that the market price for any derivative coincides with an objectively defined risk-neutral price - a plausible assumption only if traders collectively possess objective knowledge about the…
We study the optimal stopping problem of pricing an American Put option on a Zero Coupon Bond (ZCB) in the Musiela's parametrization of the Heath-Jarrow-Morton (HJM) model for forward interest rates. First we show regularity properties of…
Black-Scholes implied volatility is a quantile. The insight follows from the normalized option price being a probability on the variance scale, with the inverse Gaussian distribution providing the link. It enables analytically exact and…
This study is motivated by empirical observations of periodic fluctuations in interest rates, notably long-term economic cycles spanning decades, which the conventional Hull-White short-rate model fails to adequately capture. To address…
We introduce a Geometry Informed Model for financial forecasting by embedding high dimensional market data onto constant curvature 2manifolds. Guided by the uniformization theorem, we model market dynamics as Brownian motion on spherical…