Related papers: Symmetry reductions of a nonlinear option pricing …
Using techniques from information geometry, we construct a semi-Hamiltonian system modelling trader beliefs in a binary asset market and study the impact of inequality or asymmetry in beliefs, information, and power on price dynamics. We…
We consider the numerical approximation of the quantile hedging price in a non-linear market. In a Markovian framework, we propose a numerical method based on a Piecewise Constant Policy Timestepping (PCPT) scheme coupled with a monotone…
In the present paper, we introduce a numerical scheme for the price of a barrier option when the price of the underlying follows a diffusion process. The numerical scheme is based on an extension of a static hedging formula of barrier…
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…
We introduce the notion of difference equation defined on a structured set. The symmetry group of the structure determines the set of difference operators. All main notions in the theory of difference equations are introduced as invariants…
We consider a non-stochastic online learning approach to price financial options by modeling the market dynamic as a repeated game between the nature (adversary) and the investor. We demonstrate that such framework yields analogous…
In this paper, it is shown how a combination of approximate symmetries of a nonlinear wave equation with small dissipations and singularity analysis provides exact analytic solutions. We perform the analysis using the Lie symmetry algebra…
We study utility indifference prices and optimal purchasing quantities for a contingent claim, in an incomplete semi-martingale market, in the presence of vanishing hedging errors and/or risk aversion. Assuming that the average indifference…
We derive a closed-form solution for the price of an average price as well as an average strike geometric Asian option, by making use of the path integral formulation. Our results are compared to a numerical Monte Carlo simulation. We also…
Proof that under simple assumptions, such as constraints of Put-Call Parity, the probability measure for the valuation of a European option has the mean derived from the forward price which can, but does not have to be the risk-neutral one,…
We reconsider the problem of option pricing using historical probability distributions. We first discuss how the risk-minimisation scheme proposed recently is an adequate starting point under the realistic assumption that price increments…
Options are contingent claims regarding the value of underlying assets. The Black-Scholes formula provides a road map for pricing these options in a risk-neutral setting, justified by a delta hedging argument in which countervailing…
The Black-Scholes formula for pricing options on stocks and other securities has been generalized by Merton and Garman to the case when stock volatility is stochastic. The derivation of the price of a security derivative with stochastic…
Methods for the design of physical parameterization schemes that possess certain invariance properties are discussed. These methods are based on different techniques of group classification and provide means to determine expressions for…
We use group theoretic methods to obtain the extended Lie point symmetries of the quantum dynamics of a scalar particle probing the near horizon structure of a black hole. Symmetries of the classical equations of motion for a charged…
We consider the performance of non-optimal hedging strategies in exponential L\'evy models. Given that both the payoff of the contingent claim and the hedging strategy admit suitable integral representations, we use the Laplace transform…
The problem of determining the European-style option price in the incomplete market has been examined within the framework of stochastic optimization. An analytic method based on the discrete dynamic programming equation (Bellman equation)…
Based on an original classification of differential equations by types of regular Lie group actions, we offer a systematic procedure for describing partial differential equations with prescribed symmetry groups. Using a new powerful…
This study uses Lie's theory of symmetries to compute the symmetry group of a class of partial differential equations parameterized by four constants: $u_{t}=-\left((a-bx)u_{x}+(d-ey)u_{y}+\frac{x}{2}u_{xx}+\frac{y}{2}u_{yy}\right)$; under…
Lie symmetry analysis is an established method for generating symmetries of differential equations. We apply this method together the generalized fundamental theorem of double reduction. In particular, Noether symmetries and some associated…