Related papers: Static Arbitrage Bounds on Basket Option Prices
This paper examines the valuation of American capped call options with two-level caps. The structure of the immediate exercise region is significantly more complex than in the classical case with constant cap. When the cap grows over time,…
We consider robust pricing and hedging for options written on multiple assets given market option prices for the individual assets. The resulting problem is called the multi-marginal martingale optimal transport problem. We propose two…
This paper develops an algorithm for upper- and lower-bounding the value function for a class of linear time-varying games subject to convex control sets. In particular, a two-player zero-sum differential game is considered where the…
We consider how to use the Bellman residual of the dynamic programming operator to compute suboptimality bounds for solutions to stochastic shortest path problems. Such bounds have been previously established only in the special case that…
Option contracts can be valued by using the Black-Scholes equation, a partial differential equation with initial conditions. An exact solution for European style options is known. The computation time and the error need to be minimized…
Solving optimal stopping problems by backward induction in high dimensions is often very complex since the computation of conditional expectations is required. Typically, such computations are based on regression, a method that suffers from…
We study American swaptions in the linear-rational (LR) term structure model introduced in [5]. The American swaption pricing problem boils down to an optimal stopping problem that is analytically tractable. It reduces to a free-boundary…
We study the problem of option pricing and hedging strategies within the frame-work of risk-return arguments. An economic agent is described by a utility function that depends on profit (an expected value) and risk (a variance). In the…
In the context of a Black-Scholes economy and with a no-arbitrage argument, we derive arbitrarily accurate lower and upper bounds for the value of European options on a stock paying a discrete dividend. Setting the option price error below…
We consider options that pay the complexity deficiency of a sequence of up and down ticks of a stock upon exercise. We study the price of European and American versions of this option numerically for automatic complexity, and theoretically…
This work studies the valuation of currency options in markets suffering from a financial crisis. We consider a European option where the underlying asset is a foreign currency. We assume that the value of the underlying asset is a…
In the buyback problem, an algorithm observes a sequence of bids and must decide whether to accept each bid at the moment it arrives, subject to some constraints on the set of accepted bids. Decisions to reject bids are irrevocable, whereas…
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 paper we study the tradeoff between parallelism and communication cost in a map-reduce computation. For any problem that is not "embarrassingly parallel," the finer we partition the work of the reducers so that more parallelism can…
We derive the arbitrage gains or, equivalently, Loss Versus Rebalancing (LVR) for arbitrage between \textit{two imperfectly liquid} markets, extending prior work that assumes the existence of an infinitely liquid reference market. Our…
We investigate qualitative and quantitative behavior of a solution of the mathematical model for pricing American style of perpetual put options. We assume the option price is a solution to the stationary generalized Black-Scholes equation…
This paper studies the problem of option replication in general stochastic volatility markets with transaction costs, using a new specification for the volatility adjustment in Leland's algorithm \cite{Leland}. We prove several limit…
We continue a series of papers devoted to construction of semi-analytic solutions for barrier options. These options are written on underlying following some simple one-factor diffusion model, but all the parameters of the model as well as…
We present the first scalable bound analysis that achieves amortized complexity analysis. In contrast to earlier work, our bound analysis is not based on general purpose reasoners such as abstract interpreters, software model checkers or…
Statistical arbitrage exploits temporal price differences between similar assets. We develop a unifying conceptual framework for statistical arbitrage and a novel data driven solution. First, we construct arbitrage portfolios of similar…