Related papers: Financial Modeling and Option Theory with the Trun…
In this paper, we consider the Heston-CIR model with L\'{e}vy process for pricing in the foreign exchange (FX) market by providing a new formula that better fits the distribution of prices. To do that, first, we study the existence and…
In this paper, we will discuss an approximation of the characteristic function of the first passage time for a Levy process using the martingale approach. The characteristic function of the first passage time of the tempered stable process…
The local volatility model is a widely used for pricing and hedging financial derivatives. While its main appeal is its capability of reproducing any given surface of observed option prices---it provides a perfect fit---the essential…
In a financial market, for agents with long investment horizons or at times of severe market stress, it is often changes in the asset price that act as the trigger for transactions or shifts in investment position. This suggests the use of…
The linear programming (LP) approach is, together with value iteration and policy iteration, one of the three fundamental methods to solve optimal control problems in a dynamic programming setting. Despite its simple formulation,…
Shrinkage for time-varying parameter (TVP) models is investigated within a Bayesian framework, with the aim to automatically reduce time-varying parameters to static ones, if the model is overfitting. This is achieved through placing the…
Financial time series typically exhibit strong fluctuations that cannot be described by a Gaussian distribution. In recent empirical studies of stock market indices it was examined whether the distribution P(r) of returns r(tau) after some…
Stock price forecasting is an important issue for investors since extreme accuracy in forecasting can bring about high profits. Fuzzy Time Series (FTS) and Longest Common/Repeated Sub-sequence (LCS/LRS) are two important issues for…
Temporal difference (TD) methods constitute a class of methods for learning predictions in multi-step prediction problems, parameterized by a recency factor lambda. Currently the most important application of these methods is to temporal…
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…
It is shown that a certain functional of a branching process has representations in terms of both a maximisation problem and a minimisation problem. A consequence of these representation is that upper and lower bounds on the functional can…
We pursue robust approach to pricing and hedging in mathematical finance. We consider a continuous time setting in which some underlying assets and options, with continuous paths, are available for dynamic trading and a further set of…
We consider a Black-Scholes type equation arising on a pricing model for a multi-asset option with general transaction costs. The pioneering work of Leland is thus extended in two different ways: on the one hand, the problem is…
Valuing Guaranteed Lifelong Withdrawal Benefit (GLWB) has attracted significant attention from both the academic field and real world financial markets. As remarked by Forsyth and Vetzal the Black and Scholes framework seems to be…
G-expectation, as a sublinear expectation, provides a powerful framework for modeling uncertainty in financial markets. Motivated by the need for robust valuation under model uncertainty, this work develops a unified risk-neutral valuation…
An option market maker incurs funding costs when carrying and hedging inventory. To hedge a net long delta inventory, for example, she pays a fee to borrow stock from the securities lending market. Because of haircuts, she posts additional…
For a sample of Exponentially distributed durations we aim at point estimation and a confidence interval for its parameter. A duration is only observed if it has ended within a certain time interval, determined by a Uniform distribution.…
Focusing on gains & losses relative to a risk-free benchmark instead of terminal wealth, we consider an asset allocation problem to maximize time-consistently a mean-risk reward function with a general risk measure which is i)…
The calibration of a local volatility models to a given set of option prices is a classical problem of mathematical finance. It was considered in multiple papers where various solutions were proposed. In this paper an extension of the…
We present the first finite-sample analysis of policy evaluation in robust average-reward Markov Decision Processes (MDPs). Prior work in this setting have established only asymptotic convergence guarantees, leaving open the question of…