This paper establishes the second-order convergence rates of the continuous-time Markov chain (CTMC) approximation method for pricing continuously monitored occupation time derivatives (step options, conditional Asian options) and arithmetic Asian options and their Greeks. We fill the gap in the...

We propose an explicit closed-form approximation formula for the price of discretely monitored single or double barrier options whose underlying asset evolves according to a generic one-dimensional Markov process. This set of stochastic processes includes, but is not limited to, diffusion and...

Recently, Cai et al. (2015) proposed closed-form double transform approxima- tion formulas for prices of both discretely and continuously monitored Asian options under the setting of a general continuous-time Markov chain. In this note, we analytically invert the Z−transform and the Laplace...

Pricing financial or real options with arbitrary payoffs in regime-switching models is an important problem in finance. Mathematically, it is to solve, under certain standard assumptions, a general form of optimal stopping problems in regime-switching models. In this article, we reduce an...

We present a closed form solution to the perpetual American double barrier call option problem in a model driven by Brownian motion and a compound Poisson process with exponential jumps. The method of proof is based on reducing the inital irregular optimal stopping problem to an...

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...

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...

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...

The 1987 stock market crash occurred with minimal impact on observable economic variables (e.g., consumption), yet dramatically and permanently changed the shape of the implied volatility curve for equity index options. Here, we propose a general equilibrium model that captures many salient...

Motivated by the changing nature of the natural gas industry in the European Union driven by the liberalization process, we focus on pricing of gas swing options. These options are embedded in typical gas sales agreements in the form of offtake flexibility concerning volume and time. The gas...