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We present a stochastic local volatility model for derivative contracts on commodity futures. The aim of the model is to be able to recover the prices of derivative claims both on futures contracts and on indices on futures strategies.…
In the framework of Black-Scholes-Merton model of financial derivatives, a path integral approach to option pricing is presented. A general formula to price European path dependent options on multidimensional assets is obtained and…
Accurate prediction of electricity prices plays an essential role in the electricity market. To reflect the uncertainty of electricity prices, price intervals are predicted. This paper proposes a novel prediction interval construction…
The deterministic network calculus offers an elegant framework for determining delays and backlog in a network with deterministic service guarantees to individual traffic flows. This paper addresses the problem of extending the network…
We investigate the problem of pricing derivatives under a fractional stochastic volatility model. We obtain an approximate expression of the derivative price where the stochastic volatility can be composed of deterministic functions of time…
Options have provided a field of much study because of the complexity involved in pricing them. The Black-Scholes equations were developed to price options but they are only valid for European styled options. There is added complexity when…
In this study we consider the pricing of energy derivatives when the evolution of spot prices follows a tempered stable or a CGMY driven Ornstein- Uhlenbeck process. To this end, we first calculate the characteristic function of the…
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…
In this paper we propose a regularization approach for network modeling of German power derivative market. To deal with the large portfolio, we combine high-dimensional variable selection techniques with dynamic network analysis. The…
Virtual bidding plays an important role in two-settlement electric power markets, as it can reduce discrepancies between day-ahead and real-time markets. Renewable energy penetration increases volatility in electricity prices, making…
This paper introduces an information-based model for the pricing of storable commodities such as crude oil and natural gas. The model uses the concept of market information about future supply and demand as a basis for valuation. Physical…
Recent studies have demonstrated the efficiency of Variational Autoencoders (VAE) to compress high-dimensional implied volatility surfaces into a low dimensional representation. Although this method can be effectively used for pricing…
We consider the pricing of variable annuities (VAs) with general fee structures under popular stochastic volatility models such as Heston, Hull-White, Scott, $\alpha$-Hypergeometric, $3/2$, and $4/2$ models. In particular, we analyze the…
We provide a lean, non-technical exposition on the pricing of path-dependent and European-style derivatives in the Cox-Ross-Rubinstein (CRR) pricing model. The main tool used in the paper for cleaning up the reasoning is applying static…
We propose a new methodology for pricing options on flow forwards by applying infinite-dimensional neural networks. We recast the pricing problem as an optimization problem in a Hilbert space of real-valued function on the positive real…
This paper considers the pricing of long-term options on assets such as housing, where either government intervention or the economic nature of the asset is assumed to limit large falls in prices. The observed asset price is modelled by a…
We introduce a new tool for predicting the evolution of an option for the cases where at some specific time, there is a high-degree of uncertainty for identifying its price. We work over the special case where we can predict the evolution…
Using a suitable change of probability measure, we obtain a novel Poisson series representation for the arbitrage- free price process of vulnerable contingent claims in a regime-switching market driven by an underlying continuous- time…
In this article, we consider European options of type $h(X^1_T, X^2_T,\ldots, X^n_T)$ depending on several underlying assets. We study how such options can be valued in terms of simple vanilla options in non-specified market models. We…
We consider pricing weather derivatives for use as protection against weather extremes. The method described utilizes results from spatial statistics and extreme value theory to first model extremes in the weather as a max-stable process,…