For life insurance companies and pension funds, it is always the case in practice that not all of the risks in their books can be hedged. Hence, the standard Black-Scholes methodology cannot be applied in this situation. This paper discusses and compares several methods that have been proposed...

This paper presents a new transform-based approach for path-independent lattice construction for pricing American options under low-dimensional stochastic volatility models. We derive multidimensional transforms which allow us to construct efficient path-independent lattices for virtually all...

After a market downturn, especially in an uncertain economic environment such as the current state, there can be a relatively long period with a sideways market, where indexes, stocks, etc., move in channels with support and resistance levels. We discuss option pricing in such scenarios, in both...

We consider the martingale optimal transport duality for càdlàg processes with given initial and terminal laws. Strong duality and existence of dual optimizers (robust semi-static superhedging strategies) are proved for a class of payoffs that includes American, Asian, Bermudan, and European...

We study the impact of ambiguity on the pricing and timing of the option to invest. There is a funding gap to undertake the investment, which is covered by entering into an equity-for-guarantee swap (EGS). Our model predicts that the more ambiguity-averse the agents, the less the option value,...

The stochastic alpha beta rho (SABR) model introduced by Hagan et al. (2002) is widely used in both fixed income and the foreign exchange (FX) markets. Continuously monitored barrier option contracts are among the most popular derivative contracts in the FX markets. In this paper, we develop...

The financial crisis of 2007-2009 highlighted the importance of liquidity to many investors. University endowment funds, for example, were forced to sell publicly traded securities at substantially depressed values in order to meet funding commitments to private investments. Hedge funds engaged...

Using a representative sample of 13F reports providing novel information on option characteristics and prices, we document that hedge funds prefer to hold liquid high–embedded leverage options without lottery-like skewness. Various portfolios mimicking hedge funds' option holdings earn...

In turbulent and volatile markets options can be a preferred asset class for protection against adverse market movements. When volatility increases and markets become sparsely traded, it is not always effective to hedge adverse market movements using any option. Options, where the underlying is...

We present a numerical approach to the pricing of guaranteed minimum maturity benefits embedded in variable annuity contracts in the case where the guarantees can be surrendered at any time prior to maturity that improves on current approaches. Surrender charges are important in practice and are...