We propose a new method to estimate the empirical pricing kernel based on option data. We estimate the pricing kernel nonparametrically by using the ratio of the risk-neutral density estimator and the subjective density estimator. The risk-neutral density is approximated by a weighted kernel...

We provide an analytic model for valuing continuous barrier options. The model is manifestly arbitrage-free, exactly fits the implied volatility smile, and produces prices consistent with an underlying stochastic volatility dynamic

Quantitative structuring is a rigorous framework for the design of financial products. We show how it incorporates traditional investment ideas while supporting a more accurate expression of clients' views. We touch upon adjacent topics regarding the safety of financial derivatives and the role...

A one-dimensional partial differential-difference equation (pdde) under forward measure is developed to value European option under jump-diffusion, stochastic interest rate and local volatility. The corresponding forward Kolmogorov partial differential-difference equation for transition...

In this dissertation we price European and American vanilla and barrier options assuming that the underlying follows the variance gamma process. We solve numerically the problem implementing a finite difference algorithm and we present numerical experiments on the option pricing. This...

We consider an option pricing model proposed by, where the implementation of dynamic hedging strategies has a feedback impact on the price process of the underlying asset. We present numerical results showing that the smile and skewness patterns of implied volatility can actually be reproduced...