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An enhanced option pricing framework that makes use of both continuous and discontinuous time paths based on a geometric Brownian motion and Poisson-driven jump processes respectively is performed in order to better fit with real-observed stock price paths while maintaining the analytical...
Persistent link: https://www.econbiz.de/10013118115
Persistent link: https://www.econbiz.de/10013089116
We derive a closed-form expansion of option prices in terms of Black-Scholes prices and higher-order Greeks. We show how the true price of an option less its Black-Scholes price is given by a series of premiums on higher-order risks that are not priced under the Black-Scholes model assumptions....
Persistent link: https://www.econbiz.de/10013064395
This paper presents an extensive test of the Libor Market on the Euro Cap and Swaption market. The deterministic LIBOR market model prices OTC cap exactly and prices OTC swaptions with errors well below two basis points. Tests for the hedging performance show that the deterministic LIBOR market...
Persistent link: https://www.econbiz.de/10013071703
This paper addresses the joint calibration problem of SPX options and VIX options or futures. We show that the problem can be formulated as a semimartingale optimal transport problem under a finite number of discrete constraints, in the spirit of [arXiv:1906.06478]. We introduce a PDE...
Persistent link: https://www.econbiz.de/10012837844
Measuring the performance of stock portfolios that include options is challenging due to options' nonlinearity in the underlying, their exposure to volatility risk, and their time decay. Our contribution to the literature is twofold: First, we provide a theoretically rigorous derivation of the...
Persistent link: https://www.econbiz.de/10012900121
In this paper, we introduce and develop the theory of semimartingale optimal transport in a path dependent setting. Instead of the classical constraints on marginal distributions, we consider a general framework of path dependent constraints. Duality results are established, representing the...
Persistent link: https://www.econbiz.de/10012896686
We model the dynamics of asset prices and associated derivatives by consideration of the dynamics of the conditional probability density process for the value of an asset at some specified time in the future. In the case where the asset is driven by Brownian motion, an associated "master...
Persistent link: https://www.econbiz.de/10008797695
We introduce a novel semi-parametric estimator of the price of American options in a discrete time, Markovian framework. The estimator is based on a parametric specification of the stochasticdiscount factor and is non-parametric w.r.t. the historical dynamics of the state variables. The...
Persistent link: https://www.econbiz.de/10008798293
The main aim of this work is to price defaultable bonds. In order to achieve this goal we link first hitting densities of Brownian motion with functionals of controlled diffusions. From a practical point of view examples of diffusions with this property are: Brownian motion with linear drift,...
Persistent link: https://www.econbiz.de/10011389642