The purpose of this paper is to develop a new non-parametric method to price options based on normalized Multipoint Padé Approximants. Following the seminal paper of Padé (1892), we propose to approximate the risk-neutral distribution by a rational function of polynomials that can accommodate...

The purpose of this paper is to develop a new non-parametric method to price options based on normalized Multipoint Padeacute; Approximants. Following the seminal paper of Padeacute; (1892), we propose to approximate the risk-neutral distribution by a rational function of polynomials that can...

Geared Equity Investments (GEI) are an over-the-counter product offered by Macquarie Bank, Ltd. to high-income investors in Australia and New Zealand as a managed-risk investment in local shares with a significant tax-shield benefit. Upon issuance, a geared equity contract has three...

The generalized lambda distribution is proposed as a useful model for security price distributions. Originally used to generate random variables with varied skewness and kurtosis values in Monte Carlo simulations, proposed financial applications include estimation of state price densities from...

The academic literature generally concludes that the Black-Scholes model overstates the value of employee stock options (ESOs). In particular, because ESOs cannot be traded, employee risk aversion often elicits premature exercise. As a result, the ESO is less valuable than a traded option. An...

The exact joint distribution of the maximum and minimum of a multinomial distribution of n balls in m urns is compactly represented as a product of stochastic matrices. This representation does not require equal urn probabilities, is invariant to urn order, and permits rapid calculation of exact...

Derman and Taleb (The Issusions of Dynamic Hedging, 2005) uncover a seeming anomaly in option pricing theory which suggests that static hedging based on put-call parity provides sufficient theoretical support to justify risk-neutral option pricing. From this they suggest that dynamic hedging as...

Option professionals routinely tweak the Black-Scholes option pricing model using a volatility smile. Using algebraic analysis and Monte Carlo simulation experiments, we compare the hedging performance of the tweaked Black-Scholes option pricing model with a stochastic volatility model in a...