Related papers: An Adaptive Method for Valuing an Option on Assets…
In this paper, we address the problem of probabilistic forecasting using an adaptive volatility method rooted in classical time-varying volatility models and leveraging online stochastic optimization algorithms. These principles were…
We consider a discrete-time approximation of paths of an Ornstein--Uhlenbeck process as a mean for estimation of a price of European call option in the model of financial market with stochastic volatility. The Euler--Maruyama approximation…
We consider an optimal stochastic impulse control problem over an infinite time horizon motivated by a model of irreversible investment choices with fixed adjustment costs. By employing techniques of viscosity solutions and relying on…
In this paper, a new way to integrate volatility information for estimating value at risk (VaR) and conditional value at risk (CVaR) of a portfolio is suggested. The new method is developed from the perspective of Bayesian statistics and it…
In this paper, we derive the price of a European call option of an asset following a normal process assuming stochastic volatility. The volatility is assumed to follow the Cox Ingersoll Ross (CIR) process. We then use the fast Fourier…
The vast majority of works on option pricing operate on the assumption of risk neutral valuation, and consequently focus on the expected value of option returns, and do not consider risk parameters, such as variance. We show that it is…
We investigate the relation between the fair price for European-style vanilla options and the distribution of short-term returns on the underlying asset ignoring transaction and other costs. We compute the risk-neutral probability density…
We analyze the relative price change of assets starting from basic supply/demand considerations subject to arbitrary motivations. The resulting stochastic differential equation has coefficients that are functions of supply and demand. We…
We consider the problem of valuing a European option written on an asset whose dynamics are described by an exponential L\'evy-type model. In our framework, both the volatility and jump-intensity are allowed to vary stochastically in time…
We consider arbitrage free valuation of European options in Black-Scholes and Merton markets, where the general structure of the market is known, however the specific parameters are not known. In order to reflect this subjective uncertainty…
We consider the Black--Scholes model of financial market modified to capture the stochastic nature of volatility observed at real financial markets. For volatility driven by the Ornstein--Uhlenbeck process, we establish the existence of…
Non-equilibrium phenomena occur not only in physical world, but also in finance. In this work, stochastic relaxational dynamics (together with path integrals) is applied to option pricing theory. A recently proposed model (by Ilinski et…
In a stochastic volatility framework, we find a general pricing equation for the class of payoffs depending on the terminal value of a market asset and its final quadratic variation. This allows a pricing tool for European-style claims…
We propose the Bayesian adaptive Lasso (BaLasso) for variable selection and coefficient estimation in linear regression. The BaLasso is adaptive to the signal level by adopting different shrinkage for different coefficients. Furthermore, we…
In this paper we derive an easily computed approximation to European basket call prices for a local volatility jump-diffusion model. We apply the asymptotic expansion method to find the approximate value of the lower bound of European…
The multidimensional Uncertain Volatility Model leads to robust option pricing problems under joint volatility and correlation uncertainty. Their numerical resolution quickly becomes challenging because the associated stochastic control…
We use the expectation of the range of an arithmetic Brownian motion and the method of moments on the daily high, low, opening and closing prices to estimate the volatility of the stock price. The daily price jump at the opening is…
A statistical decision problem is hidden in the core of option pricing. A simple form for the price C of a European call option is obtained via the minimum Bayes risk, R_B, of a 2-parameter estimation problem, thus justifying calling C…
The article is devoted to models of financial markets with stochastic volatility, which is defined by a functional of Ornstein-Uhlenbeck process or Cox-Ingersoll-Ross process. We study the question of exact price of European option. The…
Employing probabilistic techniques we compute best possible upper and lower bounds on the price of an option on one or two assets with continuous piecewise linear payoff function based on prices of simple call options of possibly distinct…