Related papers: Practical guide to real options in discrete time
We derive closed-form solutions to the optimal stopping problems related to the pricing of perpetual American standard and lookback put and call options in the extensions of the Black-Merton-Scholes model with progressively enlarged…
In the present paper, an expansion of the transition density of Hyperbolic Brownian motion with drift is given, which is potentially useful for pricing and hedging of options under stochastic volatility models. We work on a condition on the…
In this paper, we focus on option pricing models based on space-time fractional diffusion. We briefly revise recent results which show that the option price can be represented in the terms of rapidly converging double-series and apply these…
Option pricing theory, such as the Black and Scholes (1973) model, provides an explicit solution to construct a strategy that perfectly hedges an option in a continuous-time setting. In practice, however, trading occurs in discrete time and…
In this article we develop an explicit formula for pricing European options when the underlying stock price follows a non-linear stochastic differential delay equation (sdde). We believe that the proposed model is sufficiently flexible to…
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.…
This paper studies the properties of discrete time stochastic optimal control problems associated with portfolio selection. We investigate if optimal continuous time strategies can be used effectively for a discrete time market after a…
Models to price long term loans in the securities lending business are developed. These longer horizon deals can be viewed as contracts with optionality embedded in them. This insight leads to the usage of established methods from…
We study the numerical evaluation of several functions appearing in the small time expansion of the distribution of the time-integral of the geometric Brownian motion as well as its joint distribution with the terminal value of the…
We establish an explicit approximation formula for European put option prices within a general stochastic volatility model with time-dependent parameters. Our methodology is based on expansions of the mixing representation of the put option…
Continuous-time Markov process models of contagions are widely studied, not least because of their utility in predicting the evolution of real-world contagions and in formulating control measures. It is often the case, however, that…
In this article we present a new approach to the numerical valuation of derivative securities. The method is based on our previous work where we formulated the theory of pricing in terms of tradables. The basic idea is to fit a finite…
We study discrete-time predictable forward processes when trading times do not coincide with performance evaluation times in a binomial tree model for the financial market. The key step in the construction of these processes is to solve a…
This study evaluates the practical usefulness of continuous-time arbitrage strategies designed to exploit serial correlation in fractional financial markets. Specifically, we revisit the strategies of Shiryaev (1998) and Salopek (1998) and…
Differential equations can be used to construct predictive models of a diverse set of real-world phenomena like heat transfer, predator-prey interactions, and missile tracking. In our work, we explore one particular application of…
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…
In this article we propose a novel approach to reduce the computational complexity of various approximation methods for pricing discrete time American options. Given a sequence of continuation values estimates corresponding to different…
We synthesize and discuss some new developments in econophysics. In doing so, we focus on option pricing. We relax the assumptions of constant volatility and interest rate. In doing so, we rely on the square root of the Brownian motion. We…
In this paper, we propose a class of discrete-time approximation schemes for stochastic optimal control problems under the $G$-expectation framework. The proposed schemes are constructed recursively based on piecewise constant policy. We…
We devise an optimal allocation strategy for the execution of a predefined number of stocks in a given time frame using the technique of discrete-time Stochastic Control Theory for a defined market model. This market structure allows an…