• It is not widely emphasized in the literature that derivatives are complex random quantities which should, by custom, be characterized by their probability density functions. • It is understood that Black-Scholes style of derivatives pricing represents an expected value, i.e. the...

The art market has seen boom and bust during the last years and, despite the downturn, has received more attention from investors given the low interest environment following the financial crisis. However, participation has been reserved for a few investors and the hedging of exposures remains...

The duality between the robust (or equivalently, model independent) hedging of path dependent European options and a martingale optimal transport problem is proved. The financial market is modeled through a risky asset whose price is only assumed to be a continuous function of time. The hedging...

In this article we study the price of an American style option based on hedging the underlying assets at discrete time. Like its European style analog, the value of the option is not given in general by an expectation with respect to an equivalent martingale measure. We provide the optimal...

We investigate the effect of including variance derivatives as calibration and hedging instruments for pricing and hedging exotic structures. This is studied empirically using market data for SPX and VIX derivatives applied in a stochastic volatility jump diffusion model

In this paper we consider the problem of pricing and hedging European derivatives written on two underlying assets, when individual marginal distributions are known. Our aim is twofold. First, we conduct a parallel analysis between implied volatility and implied correlation for spread options in...

Convexity correction arises when one computes the expected value of an interest rate index under a probability measure other than its own natural martingale measure. As a typical example, the natural martingale measure of the swap rate is the swap measure with annuity as the numeraire. However,...

We examine optimal quadratic hedging of barrier options in a discretely sampled exponential Lévy model that has been realistically calibrated to reflect the leptokurtic nature of equity returns. Our main finding is that the impact of hedging errors on prices is several times higher than the...

In this paper we consider the problem of hedging an arithmetic Asian option with discrete monitoring in an exponential Lévy model by deriving backward recursive integrals for the price sensitivities of the option. The procedure is applied to the analysis of the performance of the delta and...

Attempted dynamic replication based valuation of equity options is analyzed using the Optimal Hedge Monte-Carlo (OHMC) method. Detailed here are (1) the option hedging strategy and its costs; (2) irreducible hedging errors associated with realistically fat-tailed & asymmetric return...