We will present a model to compute a lower bound for the price of this option. The model, represented by a non-linear parabolic PDE, is implemented with finite elements in order to demonstrate the results with several derivatives from the European market.

The well-known binomial and trinomial tree models for option pricing are examined from the point of view of numerical efficiency. Common lattices use a large part of time resources for calculations which are almost irrelevant for the solution. To avoid this waste of resources, the tree is...

This paper studies modelling and existence issues for market models of option prices in a continuous-time framework with one stock, one bond and a family of European call options for one fixed maturity and all strikes. After arguing that (classical) implied volatilities are ill-suited for...

This paper determines the value of asset tradeability in an option pricing framework.In our model, tradeability is valuable since it allows investors to exploit temporary mis-pricings of stocks. The model delivers several novel insights on the value of tradeability:The value of tradeability is...

We develop a discrete-time stochastic volatility option pricing model, which exploits the informationcontained in high-frequency data. The Realized Volatility (RV) is used as a proxy of the unobservablelog-returns volatility. We model its dynamics by a simple but effective long-memory process:...

While stochastic volatility models improve on the option pricing error when compared to theBlack-Scholes-Merton model, mispricings remain. This paper uses mixed normalheteroskedasticity models to price options. Our model allows for significant negative skewnessand time varying higher order...

This paper develops a closed form risk-neutral valuation model for pricing Europeanstyle options when the underlying has a mixture of transformed-normaldistributions. Specifically, we introduce the mixture of g distributions, which containsthe mixture of normal and lognormal distributions as a...

The gamma class of distributions encompasses several important distributionseither as special or limiting cases, or through simple transformations. In this paper,we established the link between the real and the risk neutral distributions, andprovided a formal proof for the existence of the risk...

This analysis reveals the restricted scope of approaches which utilise arbitrage based arguments toprice contingent claims whose payoffs are determined by the outcome of non-zero-sum valuationgames between financial market participants. Many examples of such model formulations can befound, for...

We provide the definition and a complete characterization of regular affine processes. This type of process unifies the concepts of continuous-state branching processes with immigration and Ornstein-Uhlenbeck type processes.(...)