We introduce a jump-diffusion model for asset returns with jumps drawn from a mixture of normal distributions and show that this model adequately fits the historical data of the Samp;P500 index. We consider delta-hedging strategy for vanilla options under the diffusion model (DM) and the...

Academics and practitioners have developed many models for volatility measurement and forecast – I estimate that the total number of available models to be about 200-300 if we count all modifications of intraday estimators, GARCH-type and continuous-time models.In practice, the estimate and...

We consider calibration of log-normal stochastic volatility model and computation of option delta consistently with statistical dynamics of the asset price and its implied volatility surface. We introduce the concept of volatility skew-beta which serves as an empirical adjustment for empirical...

We consider the delta-hedging strategy for a vanilla option under the discrete hedging and transaction costs, assuming that an option is delta-hedged using the Black-Scholes-Merton model with the log-normal volatility implied by the market price of the option. We analyze the expected...

We provide a practical and technical overview of volatility trading strategies:1) The insight for the design and back-testing of systematic volatility strategies2) Understanding of risk-reward trade-off and potential pitfalls of volatility strategies We focus on systematic and rule-based trading...

We propose a structural default model to evaluate the counterparty risk by trading in credit default swap (CDS) contracts. We model the joint evolution of the firm value of the entity underlying the CDS contract and the counterparty using a correlated jump-diffusion process. Unlike the...

We analyse the effect of the discrete sampling on the valuation of options on the realized variance in the Heston (1993) stochastic volatility model. It has been known for a while (Buehler (2006)) that, even though the quadratic variance can serve as an approximation to the discrete variance for...

We develop analytical methodology for pricing and hedging options on the realized variance under the Heston stochastic variance model (1993) augmented with jumps in asset returns and variance. By employing generalized Fourier transform we obtain analytical solutions (up to numerical inversion of...

We derive explicit formulas for pricing double (single) barrier and touch options with time-dependent rebates assuming that the asset price follows a double-exponential jump diffusion process. We also consider incorporating time-dependent volatility. Assuming risk-neutrality, the value of a...

This paper discusses European option pricing under various discontinuous conditions: option and underlying prices as well as volatility and drift coefficients experience breaks. We consider vanilla and double-barrier options under double-exponential jump diffusion model with jump drift and jump...