Certain exotic options cannot be valued using closed-form solutions or even by numerical methods assuming constant volatility. Many exotics are priced in a local volatility framework. Pricing under local volatility has become a field of extensive research in finance, and various models are...

Since their introduction, quanto options have steadily gained popularity. Matching Black-Scholes-type pricing models and, more recently, a fat-tailed, normal tempered stable variant have been established. The objective here is to empirically assess the adequacy of quanto-option pricing models....

We address a number of technical problems with the popular Practitioner Black-Scholes (PBS) method for valuing options. The method amounts to a two-stage procedure in which fitted values of implied volatilities (IV) from a linear regression are plugged into the Black-Scholes formula to obtain...

The main objective of this paper is to present an algorithm of pricing perpetual American put options with asset-dependent discounting. The value function of such an instrument can be described as VωAPut(s)=supτ∈TEs[e−∫0τω(Sw)dw(K−Sτ)+], where T is a family of stopping times, ω is...

We investigate a systemic risk measure known as CoVaR that represents the value-at-risk (VaR) of a financial system conditional on an institution being under distress. For characterizing and estimating CoVaR, we use the copula approach and introduce the normal tempered stable (NTS) copula based...

This paper proposes a new method for pricing American options that uses importance sampling to reduce estimator bias and variance in simulation-and-regression based methods. Our suggested method uses regressions under the importance measure directly, instead of under the nominal measure as is...

Recently it was shown that the estimated American call prices obtained with regression and simulation based methods can be significantly improved on by using put-call symmetry. This paper extends these results and demonstrates that it is also possible to significantly reduce the variance of the...

Investment decisions usually involve the assessment of more than one financial asset or investment project (real asset). The most appropriate way to analyze the viability of a real asset is not to study it in isolation but as part of a portfolio with correlations between the input variables of...

In this paper, we evaluate American-style, path-dependent derivatives with an artificial intelligence technique. Specifically, we use swarm intelligence to find the optimal exercise boundary for an American-style derivative. Swarm intelligence is particularly efficient (regarding computation and...

This paper proposes the sample path generation method for the stochastic volatility version of the CGMY process. We present the Monte-Carlo method for European and American option pricing with the sample path generation and calibrate model parameters to the American style S&P 100 index options...