Market option prices in last 20 years confirmed deviations from the Black and Scholes (BS) models assumptions, especially on the BS implied volatility. Implied binomialtrees (IBT) models capture the variations of the implied volatility known as \volatility smile". They provide a discrete...

In this article we propose several pathwise and finite difference basedmethods for calculating sensitivities of Bermudan options using regressionmethods and Monte Carlo simulation. These methods rely on conditionalprobabilistic representations which allow, in combination with aregression...

The main aim of this paper is to compare the size and size-adjusted power prop-erties of four residual-based and one maximum-likelihood-based panel cointegrationtests with the help of Monte Carlo simulations. In this study the panel-rho, the group-rho, the panel-t, the group-t statistics of...

In the ideal Black-Scholes world, financial time series are assumed 1) stationary (time homogeneous) and 2) having conditionally normal distribution given the past. These two assumptions have been widely-used in many methods such as the RiskMetrics, one risk management method considered as...

A new algorithm for finding value functions of finite horizon optimal stopping problems in one-dimensional diffusion models is presented. It is based on a time discretization of the corresponding integral equation. The proposed iterative procedure for solving the discretized integral equation...

In this paper we carry over the concept of reverse probabilistic representations developed in Milstein, Schoenmakers, Spokoiny (2004) for diffusion processes, to discrete time Markov chains. We outline the construction of reverse chains in several situations and apply this to processes which are...

Here we develop an approach for efficient pricing discrete-time American and Bermudan options which employs the fact that such options are equivalent to theEuropean ones with a consumption, combined with analysis of the market model over a small number of steps ahead. This approach allows...

This paper investigates the finite sample properties of confidence intervals for structural vector error correction models (SVECMs) with long-run identifying restrictions on the impulse response functions. The simulation study compares methods that are frequently used in applied SVECM studies...

State price densities (SPD) are an important element in applied quantitativefinance. In a Black-Scholes model they are lognormal distributions with constant volatility parameter. In practice volatility changes and the distribution deviates from log-normality. We estimate SPDs using EUREX option...

The Black-Scholes formula, one of the major breakthroughs of modern finance,allows for an easy and fast computation of option prices. But some of its assumptions, like constant volatility or log-normal distribution of asset prices,do not find justification in the markets. More complex models,...