Related papers: A High-Level Framework for Practically Model-Indep…
The crisis that affected financial markets in the last years leaded market practitioners to revise well known basic concepts like the ones of discount factors and forward rates. A single yield curve is not sufficient any longer to describe…
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…
This work illustrates how several new pricing formulas for exotic options can be derived within a Levy framework by employing a unique pricing expression. Many existing pricing formulas of the traditional Gaussian model are obtained as a…
Pricing advanced data products - particularly in complex fields such as semiconductor manufacturing - is a fundamentally challenging task due to the sparsity of publicly available transaction data, and its frequent heterogeneity and…
We introduce a fast and flexible Machine Learning (ML) framework for pricing derivative products whose valuation depends on volatility surfaces. By parameterizing volatility surfaces with the 5-parameter stochastic volatility inspired (SVI)…
This paper describes a consistent and arbitrage-free pricing methodology for bespoke CDO tranches. The proposed method is a multi-factor extension to the (Li 2009) model, and it is free of the known flaws in the current standard pricing…
This paper presents a new model for pricing financial derivatives subject to collateralization. It allows for collateral arrangements adhering to bankruptcy laws. As such, the model can back out the market price of a collateralized…
We consider the pricing and hedging of exotic options in a model-independent set-up using \emph{shortfall risk and quantiles}. We assume that the marginal distributions at certain times are given. This is tantamount to calibrating the model…
A variance swap is a derivative with a path-dependent payoff which allows investors to take positions on the future variability of an asset. In the idealised setting of a continuously monitored variance swap written on an asset with…
The pricing of options, warrants and other derivative securities is one of the great success of financial economics. These financial products can be modeled and simulated using quantum mechanical instruments based on a Hamiltonian…
This paper covers a massive acceleration of Monte-Carlo based pricing method for financial products and financial derivatives. The method is applicable in risk management settings, where a financial product has to be priced under a number…
We revisit the problem of pricing and hedging plain vanilla single-currency interest rate derivatives using multiple distinct yield curves for market coherent estimation of discount factors and forward rates with different underlying rate…
A volatility surface is an important tool for pricing and hedging derivatives. The surface shows the volatility that is implied by the market price of an option on an asset as a function of the option's strike price and maturity. Often,…
In this paper we present a rigorously motivated pricing equation for derivatives, including general cash collateralization schemes, which is consistent with quoted market bond prices. Traditionally, there have been differences in how…
Managing exotic derivatives requires accurate mark-to-market pricing and stable Greeks for reliable hedging. The Local Volatility (LV) model distinguishes itself from other pricing models by its ability to match observable market prices…
We show how inter-asset dependence information derived from market prices of options can lead to improved model-free price bounds for multi-asset derivatives. Depending on the type of the traded option, we either extract correlation…
We amend and extend the Chiarella model of financial markets to deal with arbitrary long-term value drifts in a consistent way. This allows us to improve upon existing calibration schemes, opening the possibility of calibrating individual…
This article is the second one in a series on the use of scaling invariance in finance. In the first article (cond-mat/9906048), we introduced a new formalism for the pricing of derivative securities, which focusses on tradable objects…
Several models for the pricing of derivative securities in illiquid markets are discussed. A typical type of nonlinear partial differential equations arising from these investigation is studied. The scaling properties of these equations are…
Discrete choice models are commonly used by applied statisticians in numerous fields, such as marketing, economics, finance, and operations research. When agents in discrete choice models are assumed to have differing preferences, exact…