This paper explores the contagious propagation of jumps among international stock market indices by exploiting a rich panel of stock and options data. We propose a multivariate option pricing model designed to allow for, but not superimpose, time and space amplification of jumps in option...

When using an Euler discretisation to simulate a mean-reverting square root process, one runs into the problem that while the process itself is guaranteed to be nonnegative, the discretisation is not. Although an exact and efficient simulation algorithm exists for this process, at present this...

At the time of writing this article, Fourier inversion is the computational method of choice for a fast and accurate calculation of plain vanilla option prices in models with an analytically available characteristic function. Shifting the contour of integration along the complex plane allows for...

The characteristic functions of many affine jump-diffusion models, such as Heston’s stochastic volatility model and all of its extensions, involve multivalued functions such as the complex logarithm. If we restrict the logarithm to its principal branch, as is done in most software packages,...

We investigate the relationship between the gas spot market and the price of gas storage capacity. Contrary to the common belief, the auction prices for gas storage are mostly affected by the volatility of current market prices rather than by the winter-summer price differences. This paper...

Taking a portfolio perspective on option pricing and hedging, we show that within the standard Black-Scholes-Merton framework large portfolios of options can be hedged without risk in discrete time. The nature of the hedge portfolio in the limit of large portfolio size is substantially different...

While the stochastic volatility (SV) generalization has been shown to improvethe explanatory power compared to the Black-Scholes model, the empiricalimplications of the SV models on option pricing have not been adequately tested.The purpose of this paper is to first estimate a multivariate SV...

In this paper, we introduce two classes of indices which can be used to measure the market perception concerning the degree of dependency that exists between a set of random variables, representing different stock prices at a fixed future date. The construction of these measures is based on the...

We use a series of different approaches to extract information about crash risk from option prices for the Euro-Dollar exchange rate, with each step sharpening the focus on extracting more specific measures of crash risk around dates of ECB measures of Unconventional Monetary Policy. Several...