Recently, advantages of conformal deformations of the contours of integration in pricing formulas for European options have been demonstrated in the context of wide classes of L'evy models, the Heston model and other affine models. Similar deformations were used in one-factor L'evy models to...

We suggest new efficient integral representations and methods for evaluation of pdfs, cpds and quantiles of stable distributions. For wide regions in the parameter space, absolute errors of order 10 can be achieved in 0.005-0.1 msec (Matlab implementation), even when the index of the...

We suggest new families of integral representations of pdfs and cpds of stable distributions, which lead to efficient numerical methods. The first method is based on the approximation of the characteristic exponent by functions analytic in the complex plane with two cuts i(-∞,-λ] and i[λ,...

We give short proofs of general theorems about optimal entry and exit problems in Levy models, when payoff streams may have discontinuities and be non-monotone. As applications, we consider exit and entry problems in the theory of real options, and an entry problem with an embedded option to exit

We review popular methods for pricing European options based on the Fourier expansion of the payoff function (iFT method) and the trapezoid rule, and suggest several new efficient variations. The first variation is a group of PMwFT methods (Payoff Modification with Fourier Transform), which...

We study a stochastic version of Fudenberg and Tirole's (1985) preemption game to analyze the effects of jumps in the underlying uncertainty on equilibrium strategies. Two firms contemplate entering a new market where the demand follows a jump-diffusion process. Firms differ is the sunk costs of...

Several discounted utility anomalies are explained as rational choices of an agent with standard preferences and stochastic income. We define the term structure of absolute risk aversion and demonstrate that the gain-loss asymmetry is observed for small gains and losses and a general utility...

For wide classes of payoff functions and Lévy processes, we solve perpetual restricted optimal stopping problems, when one exercise region is exogenously given (barrier like feature), and the other is chosen to optimize the option value, and straddle-like perpetual options, when the optimal...

In this paper, we argue that, once the costs of maintaining the hedging portfolio are properly taken into account, semi-static portfolios should more properly be thought of as separate classes of derivatives, with non-trivial, model-dependent payoff structures. We derive new integral...