Monte Carlo methods are widely-used simulation tools for market practitioners from trading to risk management. When pricing complex instruments, like mortgage-backed securities (MBS), strong path-dependency and high dimensionality make the Monte Carlo method the most suitable, if not the only,...

Transaction-cost models in continuous-time markets are considered. Given that investors decide to buy or sell at certain time instants, we study the existence of trading strategies that reach a certain final wealth level in continuous-time markets, under the assumption that transaction costs,...

The Markov Tree model is a discrete-time option pricing model that accounts for short-term memory of the underlying asset. In this work, we compare the empirical performance of the Markov Tree model against that of the Black-Scholes model and Heston's stochastic volatility model. Leveraging a...

In option pricing models with correlated stochastic processes, an option premium is commonly a solution to a partial differential equation (PDE) with mixed derivatives in more than two space dimensions. Alternating direction implicit (ADI) finite difference methods are popular for solving a PDE...

This study develops a quasi-closed-form solution for the valuation of an American put option and the critical price of the underlying asset. This is an important area of research both because of a large number of transactions for American put options on different underlying assets (stocks,...

We propose a comprehensive approach for the analysis of real economy and government sector risk transmission to the banking system and apply it in ten Euro-Area countries from 2005 to 2017. A flexible methodology is developed to model banks' assets according to the risk-adjusted balance sheet of...

A new method for pricing contingent claims based on an asymptotic expansion of the dynamics of the pricing density is introduced. The expansion is conducted in a preferred coordinate frame, in which the pricing density looks stationary. The resulting asymptotic Kolmogorov-backward-equation is...

This paper studies option pricing based on a reverse engineering (RE) approach. We utilize artificial intelligence in order to numerically compute the prices of options. The data consist of more than 5000 call- and put-options from the German stock market. First, we find that option pricing...