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Representations for optimal stopping under dynamic monetary utility functionals

Krätschmer, Volker; Schoenmakers, John - 2009

In this paper we consider the optimal stopping problem for general dynamic monetary utility functionals. Sufficient conditions for the Bellman principle and the existence of optimal stopping times are provided. Particular attention is payed to representations which allow for a numerical...

Persistent link: https://www.econbiz.de/10003905569

FX smile in the Heston model

Janek, Agnieszka; Kluge, Tino; Weron, Rafał; Wystup, Uwe - 2010

. -- Heston model ; vanilla option ; stochastic volatility ; Monte Carlo simulation ; Feller condition ; option pricing with FFT …

Persistent link: https://www.econbiz.de/10008663372

Conditional density models for asset pricing

Filipović, Damir; Hughston, Lane P.; Macrina, Andrea - 2010

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...

Persistent link: https://www.econbiz.de/10008797695

The endogenous price dynamics of the emission allowances : an application to CO 2 option pricing

Chesney, Marc; Taschinia, Luca - 2008

Market mechanisms are increasingly being used as a tool for allocating somewhat scarce but unpriced rights and resources, and the European Emission Trading Scheme is an example. By means of dynamic optimization in the contest of firms covered by such environmental regulations, this paper...

Persistent link: https://www.econbiz.de/10003961380

Pricing of gas swing options using Monte Carlo methods

Klimešová, Andrea; Václavík, Tomáš - 2011

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...

Persistent link: https://www.econbiz.de/10009152601

Valuing American options using fast recursive projections

Cosma, Antonio; Galluccio, Stefano; Scaillet, Olivier - 2012

This paper introduces a new numerical option pricing method by fast recursive projections. The projection step consists in representing the payoff and the state price density with a fast discrete transform based on a simple grid sampling. The recursive step consists in transmitting coefficients...

Persistent link: https://www.econbiz.de/10009558308

An analytic approximation of the implied risk-neutral density of American multi-asset options

Arismendi Zambrano, Juan Carlos; Prokopczuk, Marcel - 2014

The price of a European option can be computed as the expected value of the payoff function under the risk-neutral measure. For American options and path-dependent options in general, this principle cannot be applied. In this paper, we derive a model-free analytical formula for the implied...

Persistent link: https://www.econbiz.de/10010532229

Convergence studies on Monte Carlo methods for pricing mortgage-backed securities

Pang, Tao; Yang, Yipeng; Zhao, Dai - In: International Journal of Financial Studies : open … 3 (2015) 2, pp. 136-150

Monte Carlo methods are widely-used simulation tools for market practitioners from trading to risk management. When … Monte Carlo method the most suitable, if not the only, numerical method. In practice, while simulation processes in option … convergence of OAS requires thousands of simulation paths (absolute convergence), only hundreds of paths may be needed to obtain …

Persistent link: https://www.econbiz.de/10011308463

Asset pricing in incomplete markets : valuing gas storage capacity

Zhao, Lin; Wijnbergen, Sweder van - 2015

We investigate the relationship between the gas spot market and the price of gas storage capacity. Contrary to the common belief, the auction prices for gas storage are mostly affected by the volatility of current market prices rather than by the winter-summer price differences. This paper...

Persistent link: https://www.econbiz.de/10011333083

Optimal Fourier inversion in semi-analytical option pricing

Lord, Roger; Kahl, Christian - 2007 - This version: 10th May 2007

At the time of writing this article, Fourier inversion is the computational method of choice for a fast and accurate calculation of plain vanilla option prices in models with an analytically available characteristic function. Shifting the contour of integration along the complex plane allows for...

Persistent link: https://www.econbiz.de/10011349177