Related papers: Symmetry reductions of a nonlinear option pricing …
In this article we develop an explicit formula for pricing European options when the underlying stock price follows a non-linear stochastic differential delay equation (sdde). We believe that the proposed model is sufficiently flexible to…
A discretization scheme for nonnegative diffusion processes is proposed and the convergence of the corresponding sequence of approximate processes is proved using the martingale problem framework. Motivations for this scheme come typically…
As operators acting on the undetermined final settlement of a derivative security, expectation is linear but price is non-linear. When the market of underlying securities is incomplete, non-linearity emerges from the bid-offer around the…
This paper presents a new model for options pricing. The Black-Scholes-Merton (BSM) model plays an important role in financial options pricing. However, the BSM model assumes that the risk-free interest rate, volatility, and equity premium…
We solve the problem of super-hedging European or Asian options for discrete-time financial market models where executable prices are uncertain. The risky asset prices are not described by single-valued processes but measurable selections…
In this paper we propose a (non-linear) smoothing algorithm for group-affine observation systems, a recently introduced class of estimation problems on Lie groups that bear a particular structure. As most non-linear smoothing methods, the…
We apply symmetry and invariance methods to analyse systems of difference equations. Non trivial symmetries are derived and their exact solutions obtained.
Modelling stock prices via jump processes is common in financial markets. In practice, to hedge a contingent claim one typically uses the so-called delta-hedging strategy. This strategy stems from the Black--Merton--Scholes model where it…
We consider arbitrage free valuation of European options in Black-Scholes and Merton markets, where the general structure of the market is known, however the specific parameters are not known. In order to reflect this subjective uncertainty…
We introduce and discuss a general criterion for the derivative pricing in the general situation of incomplete markets, we refer to it as the No Almost Sure Arbitrage Principle. This approach is based on the theory of optimal strategy in…
We propose a pricing technique based on coherent risk measures, which enables one to get finer price intervals than in the No Good Deals pricing. The main idea consists in splitting a liability into several parts and selling these parts to…
We study a notion of good-deal hedging, that corresponds to good-deal valuation for generalized good-deal constraints. Under model uncertainty about the market prices of risk of hedging assets, a robust approach leads to a reduction or even…
Lie group theory states that knowledge of a $m$-parameters solvable group of symmetries of a system of ordinary differential equations allows to reduce by $m$ the number of equations. We apply this principle by finding some \emph{affine…
Option pricing theory, such as the Black and Scholes (1973) model, provides an explicit solution to construct a strategy that perfectly hedges an option in a continuous-time setting. In practice, however, trading occurs in discrete time and…
The solution of a class of third order ordinary differential equations possessing two parameter Lie symmetry group is obtained by group theoretic means. It is shown that reduction to quadratures is possible according to two scenarios: 1) if…
Nonlinear ODEs invariant under the group SL(2,R) are solved numerically. We show that solution methods incorporating the Lie point symmetries provide better results than standard methods.
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…
We propose a new cognitive framework for option price modelling, using quantum neural computation formalism. Briefly, when we apply a classical nonlinear neural-network learning to a linear quantum Schr\"odinger equation, as a result we get…
Symmetries of nonlinear control systems in state representation are considered. To this end, a geometric approach to ordinary differential equations is advocated. Invariant feedback laws for systems with Lie symmetries, i.e. feedback laws…
We proposed classification models that utilize the result from the Quasi-Reversibility Method, which solves the Black-Scholes equation to forecast the option prices one day in advance. Combining the minimizer from QRM with our machine…