A new method to retrieve the risk-neutral probability measure from observed option prices is developed and a closed form pricing formula for European options is obtained by employing a modified Gram-Charlier series expansion, known as the Gauss-Hermite expansion. This expansion converges for...

In this paper, a mathematical model for American call option pricing incorporating the seasonal effect inspite of leverage effect on volatility is developed. The effect of strike price, interest rate, dividends and maturities on option pricing and portfolio dynamics is discussed by solving the...

In this paper, European put option pricing with stochastic volatility forecasted by well known GARCH model is discussed in context of Indian financial market. The data of Reliance Ltd. stock price from 3/01/2000 to 30/03/2009 is used and resulting partial differential equation is solved by...

Asian options are securities with a payoff that depends on the average of the underlying stock price over a certain time interval. We identify three natural assets that appear in pricing of the Asian options, namely a stock S, a zero coupon bond BT with maturity T, and an abstract asset A (an...

A callable leveraged constant maturity swap (CMS) spread note allows the holder to benefit from future changes in the spread between two swap interest rates. The issues retains the right to call the note at pre-specified times in the future. The note is priced via Monte Carlo simulation using...

This contribution deals with options on assets which pay cash dividends. Pricing methods which consider discrete dividends are usually computationally expensive; a first purpose of this paper is to study efficient and accurate numerical procedures which yield consistent prices for both European...

We propose an efficient method to evaluate callable and putable bonds under a wide class of interest rate models, including the popular short rate diffusion models, as well as their time changed versions with jumps. The method is based on the eigenfunction expansion of the pricing operator....

We develop a new method for pricing options on discretely sampled arithmetic average in exponential L'evy models. The main idea is the reduction to a backward induction procedure for the difference W_n between the Asian option with averaging over n sampling periods and the price of the European...

We consider discretely monitored barrier options under Levy models, including single and double barrier options and first touch digitals, as well as CDS and defaultable bonds. At each step of backward induction, we use piece-wise polynomial interpolation and an efficient version of the Fourier...