Related papers: Partial Derivative Approach for Option Pricing in …
Stochastic dividend discount models (Hurley and Johnson, 1994 and 1998, Yao, 1997) present expressions for the expected value of stock prices when future dividends evolve according to some random scheme. In this paper we try to offer a more…
The Capital Asset Pricing Model (CAPM) relates a well-diversified stock portfolio to a benchmark portfolio. We insert size effect in CAPM, capturing the observation that small stocks have higher risk and return than large stocks, on…
Stochastic volatility (SV) models mimic many of the stylized facts attributed to time series of asset returns, while maintaining conceptual simplicity. The commonly made assumption of conditionally normally distributed or…
We study a variant of the Cont-Bouchaud model which utilizes the perco lation approach of multi-agent simulations of the stock market fluctuations. Here, instead of considering the relative price change as the difference of the total demand…
In the first quarter of 2006 Chicago Board Options Exchange (CBOE) introduced, as one of the listed products, options on its implied volatility index (VIX). This created the challenge of developing a pricing framework that can…
In this paper, we consider the problem of pricing discretely-sampled variance swaps based on a hybrid model of stochastic volatility and stochastic interest rate with regime-switching. Our modelling framework extends the Heston stochastic…
We consider a process $X_t$, which is observed on a finite time interval $[0,T]$, at discrete times $0,\Delta_n,2\Delta_n,\ldots.$ This process is an It\^{o} semimartingale with stochastic volatility $\sigma_t^2$. Assuming that $X$ has…
We consider derivatives written on multiple underlyings in a one-period financial market, and we are interested in the computation of model-free upper and lower bounds for their arbitrage-free prices. We work in a completely realistic…
We give three derivations of Polya's approximation for the expected range of a simple random walk in one dimension. This result allows for an estimation of the volatility of a financial instrument from the difference between the high and…
We describe a simple model for speculative trading based on adaptive behavior of economic agents.The adaptive behavior is expressed through a feedback mechanism for changing agents' stock-to-bond ratios, depending on the past performance of…
In this paper, we present a method of estimating the volatility of a signal that displays stochastic noise (such as a risky asset traded on an open market) utilizing Linear Predictive Coding. The main purpose is to associate volatility with…
Recent empirical studies suggest that the volatilities associated with financial time series exhibit short-range correlations. This entails that the volatility process is very rough and its autocorrelation exhibits sharp decay at the…
We use a path integral approach for solving the stochastic equations underlying the financial markets, and we show the equivalence between the path integral and the usual SDE and PDE methods. We analyze both the one-dimensional and the…
Quantization algorithms have been successfully adopted to option pricing in finance thanks to the high convergence rate of the numerical approximation. In particular, very recently, recursive marginal quantization has been proven to be a…
The present paper introduces a majority orienting model in which the dealers' behavior changes based on the influence of the price to show the oscillation of stock price in the stock market. We show the oscillation of the price for the…
Recent years have seen an increased level of interest in pricing equity options under a stochastic volatility model such as the Heston model. Often, simulating a Heston model is difficult, as a standard finite difference scheme may lead to…
We use a continuous version of the standard deviation premium principle for pricing in incomplete equity markets by assuming that the investor issuing an unhedgeable derivative security requires compensation for this risk in the form of a…
The Chicago Board Options Exchange Volatility Index (VIX) is calculated from SPX options and derivatives of VIX are also traded in market, which leads to the so-called ``consistent modeling" problem. This paper proposes a time-changed…
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 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.…