In this paper, we introduce a new GARCH model with an infinitely divisible distributed innovation, referred to as the rapidly decreasing tempered stable (RDTS) GARCH model. This model allows the description of some stylized empirical facts observed for stock and index returns, such as volatility...

In this paper we will introduce a hybrid option pricing model that combines the classical tempered stable model and regime switching by a hidden Markov chain. This model allows the description of some stylized phenomena about asset return distributions that are well documented in financial...

It is well known that a Quanto Process based on Lognormal Equity and Lognormal exchange rate processes can be easily simulated through a Lognormal process with modified drift. We study here what happens when both processes follow a local volatility model. In addition, we analyze the impact of...

We find lower and upper bounds for the price of Bermudan basket options by Monte-Carlo simulation through regression and look at the impact of the choice of random number generator, as well as whether including in-the-money paths or not in the regression

Under the local volatility model, the convergence of Monte-Carlo with Milstein discretization and Euler discretization are compared for the pricing of Vanilla, Digital, discrete Barrier options as well as a more exotic variety of option, the Accumulator. A finite difference approach is also...

The implied volatility surface is built from a discrete set of vanilla option quotes. To move from a discrete set to a continuous surface, interpolation and extrapolation are therefore needed in the expiry dimension as well as in the strike dimension. This paper will study the interpolation and...

In this paper, we combine modern portfolio theory and option pricing theory so that a trader who takes a position in a European option contract and the underlying assets can construct an optimal portfolio such that at the moment of the contract's maturity the contract is perfectly hedged. We...

There is no exact closed form formula for pricing of European options with discrete cash dividends under the model where the underlying asset price follows a piecewise lognormal process with jumps at dividend ex-dates. This paper presents alternative expansions based on the technique of Etore...