Related papers: Options on Hedge Funds under the High Water Mark R…
We consider a new family of derivatives whose payoffs become strictly positive when the price of their underlying asset falls relative to its historical maximum. We derive the solution to the discretionary stopping problems arising in the…
The pricing and hedging of a general class of options (including American, Bermudan and European options) on multiple assets are studied in the context of currency markets where trading is subject to proportional transaction costs, and…
Executing even moderately large derivatives orders can be expensive and risky; it's hard to balance the uncertainty of working an order over time versus paying a liquidity premium for immediate execution. Here, we introduce the Time Is…
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…
The aim of this article is to provide a systematic analysis of the conditions such that Fourier transform valuation formulas are valid in a general framework; i.e. when the option has an arbitrary payoff function and depends on the path of…
We model investor heterogeneity using different required returns on an investment and evaluate the impact on the valuation of an investment. By assuming no disagreement on the cash flows, we emphasize how risk preferences in particular, but…
We find the variance-optimal equivalent martingale measure when multivariate assets are modeled by a regime-switching geometric Brownian motion, and the regimes are represented by a homogeneous continuous time Markov chain. Under this new…
The variance gamma model is a widely popular model for option pricing in both academia and industry. In this paper, we provide a new perspective for pricing European style options for the variance gamma model by deriving closed-form…
In Electricity markets, illiquidity, transaction costs and market price characteristics prevent managers to replicate exactly contracts. A residual risk is always present and the hedging strategy depends on a risk criterion chosen. We…
Hedge fund managers with the first-loss scheme charge a management fee, a performance fee and guarantee to cover a certain amount of investors' potential losses. We study how parties can choose a mutually preferred first-loss scheme in a…
There exist several methods how more general options can be priced with call prices. In this article, we extend these results to cover a wider class of options and market models. In particular, we introduce a new pricing formula which can…
We study some properties of the American option price in the stochastic volatility Heston model. We first prove that, if the payoff function is convex and satisfies some regularity assumptions, then the option value function is increasing…
We derive behavioral finance option pricing formulas consistent with the rational dynamic asset pricing theory. In the existing behavioral finance option pricing formulas, the price process of the representative agent is not a…
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…
This paper deals with a fundamental subject that has seldom been addressed in recent years, that of market impact in the options market. Our analysis is based on a proprietary database of metaorders-large orders that are split into smaller…
It is well known that any sufficiently regular one-dimensional payoff function has an explicit static hedge by bonds, forward contracts and lots of vanilla options. We show that the natural extension of the corresponding representation…
One of the shortcomings of the Black and Scholes model on option pricing is the assumption that trading of the underlying asset does not affect the price of that asset. This assumption can be fulfilled only in perfectly liquid markets.…
This paper aims to make a new contribution to the study of lifetime ruin problem by considering investment in two hedge funds with high-watermark fees and drift uncertainty. Due to multi-dimensional performance fees that are charged…
We consider the problem of valuation of American options written on dividend-paying assets whose price dynamics follows a multidimensional exponential Levy model. We carefully examine the relation between the option prices, related partial…
According to the volatility feedback effect, an unexpected increase in squared volatility leads to an immediate decline in the price-dividend ratio. In this paper, we consider the properties of stock price dynamics and option valuations…