In this paper we derive analytic formulas for electricity derivatives under assumption that electricity spot prices follow a 3-regime Markov regime-switching model with independent spikes and drops and periodic transition matrix. Since the classical derivatives pricing methodology cannot be used...

In this paper we derive analytic formulas for electricity derivatives under assumption that electricity spot prices follow a 3-regime Markov regime-switching model with independent spikes and drops and periodic transition matrix. Since the classical derivatives pricing methodology cannot be used...

In illiquid markets, option traders may have an incentive to increase their portfolio value by using their impact on the dynamics of the underlying. We provide a mathematical framework to construct optimal trading strategies under market impact in a multi-player framework by introducing...

We consider models for the valuation of derivative securities that depend on foreign exchange rates. We derive partial differential equations for option prices in an arbitrage-free market with stochastic volatility. By use of standard techniques, and under the assumption of fast mean reversion...

This work deals with the issue of investors’ irrational behavior and financial products’ misperception. The theoretical analysis of the mechanisms driving erroneous assessment of investment performances is explored. The study is supported by the application of Monte Carlo simulations to the...

Purpose – The purpose of this paper is to propose a model for ruin-contingent life annuity (RCLA) contracts under a jump diffusion model, where the dynamics of volatility is governed by the Heston stochastic volatility framework. The paper aims to illustrate that the proposed jump diffusion...