We introduce a new class of flexible and tractable matrix affine jump-diffusions (AJD) to model multivariate sources of financial risk. We first provide a complete transform analysis of this model class, which opens a range of new potential applications to, e.g., multivariate option pricing with...

We price derivatives defined for different asset classes with a full stochastic dependence structure. We consider jointly geometric Brownian motions and mean-reversion processes with a a stochastic variance-covariance matrix driven by a Wishart process. These models cannot be treated within the...

We consider implied volatility, time-dependent volatility, local volatility and stochastic volatility. We derive relationships between the different concepts. The relationships are of an exact analytical type if this is possible, else we use expansions to obtain approximate expressions. We close...

We recall some fundamentals on Levy processes. Then the Gamma distribution, the Variance Gamma process and option pricing for this process are considered in detail. To implement the Variance Gamma model for option pricing, we use the fast Fourier transform, time change and discuss error bounds

We analyze the impact of funding costs and margin requirements on prices of index options traded on the CBOE. We propose a model that gives upper and lower bounds for option prices in the absence of arbitrage in an incomplete market with differential borrowing and lending rates. We show that...

Lin and Chang (2009, 2010) establish a VIX futures and option pricing theory when modeling S&P 500 index by using a stochastic volatility process with asset return and volatility jumps. In this note, we prove that Lin and Chang's formula is not an exact solution of their pricing equation. More...