The notion of model-free implied volatility (MFIV), constituting the basis for the highly publicized VIX volatility index, can be hard to measure with accuracy due to the lack of precise prices for options with strikes in the tails of the return distribution. This is reflected in practice as the...

Closed-form pricing formulae and option Greeks are obtained for European-type options using an orthogonal polynomial series -- complex Fourier series. We assume that risky assets are driven by exponential Lévy processes and stochastic volatility models. We provide a succinct error analysis to...

In recent years there has been a remarkable growth of multi-asset options. These options exhibit sensitivity to the volatility of the underlying assets, as well as to their correlations. The call versus call is a product commonly used to trade correlation within the inter-dealer broker markets....

An option market maker incurs funding costs when carrying and hedging inventory. To hedge a net long delta inventory, for example, she pays a fee to borrow stock from the security lending market. Because of haircuts, she posts additional cash margin to the lender which needs to be financed at...

We prove here a general closed-form expansion formula for forward-start options and the forward implied volatility smile in a large class of models, including the Heston stochastic volatility and time-changed exponential Levy models.This expansion applies to both small and large maturities and...

In this paper we represent alternative approach for exotics options valuation problem. We study the time-space discrete valuation setting that usually referred to as the binomial scheme if states are two. The main distinction of the alternative pricing approach is that we interpret price of the...

This paper introduces an option pricing algorithm based on non-orthogonal series expansion methods. More precisely, Gabor frame decomposition is used to split the risk neutral option pricing formula into the sum of two inner products that can be evaluated efficiently by means of Parseval's...

We provide evidence of a strong effect of the underlying stock's illiquidity on option prices by showing that the average absolute difference between historical and implied volatility increases with stock illiquidity. This pattern translates into significant excess returns of option trading...

Investment behaviour, techniques and choices have evolved in the options markets since the launch of options trading in 1973. Today, we are entering the field of Big Data and the explosion of information, which has become the main feature of science, impacts investors' decisions and their...