A locally-built, LLM-digested index of recent arXiv papers in quant finance, geometry/topology, and statistical ML — keyword search served straight from SQLite on this machine.
Optimal hedging strategies for exotic options using vanilla options.
In this paper we extend Buchen's method to develop a new technique for pricing of some exotic options with several expiry dates(more than 3 expiry dates) using a concept of higher order binary option. At first we introduce the concept of higher order binary option and then provide the pricing formulae of -th order b…
Study proves duality in exotic option pricing under uncertain model and delayed information.
Study dynamic trading in options to improve price bounds for exotic derivatives.
Model accurately calibrates FX market skew for exotic options.
New method preserves option structure while using neural networks for volatility.
The study examines how including additional call option prices affects model-independent price bounds for exotic derivatives.
Tensor networks improve exotic option pricing efficiency.
We estimate prices of exotic options in a discrete-time model-free setting when the trader has access to market prices of a rich enough class of exotic and vanilla options. This is achieved by estimating an unobservable quantity called "implied expected signature" from such market prices, which are used to price other …
This work illustrates how several new pricing formulas for exotic options can be derived within a Levy framework by employing a unique pricing expression. Many existing pricing formulas of the traditional Gaussian model are obtained as a by-product.
This paper considers the valuation of exotic path-dependent options in Lévy models, in particular options on the supremum and the infimum of the asset price process. Using the Wiener--Hopf factorization, we derive expressions for the analytically extended characteristic function of the supremum and the infimum of a Lév…
Develops a framework for consistent pricing of interest rate derivatives.
Study values American passport options in an exponential Lévy model.
We use Karhunen-Loève expansion for efficient pricing of exotic derivatives.
There are no known exact formulas for the valuation of a number of exotic options, and this is particularly true for options under discrete monitoring and for American style options. Therefore, one usually recourses to a Monte Carlo Simulation approach, amongst other numerical methods, to estimate the value of these op…
The paper introduces a new model to improve exotic option pricing.
The model outperforms other models in option pricing, especially for short-term implied volatility.
We apply supervised deep neural networks (DNNs) for pricing and calibration of both vanilla and exotic options under both diffusion and pure jump processes with and without stochastic volatility. We train our neural network models under different number of layers, neurons per layer, and various different activation fun…
There is a vast literature on numerical valuation of exotic options using Monte Carlo, binomial and trinomial trees, and finite difference methods. When transition density of the underlying asset or its moments are known in closed form, it can be convenient and more efficient to utilize direct integration methods to ca…
Study uses AI to price exotic options with a new Levy process model.
A new model adds stochastic spot/volatility correlation to Heston model for better exotic pricing.
We show that the frequent claim that the implied tree prices exotic options consistently with the market is untrue if the local volatilities are subject to change and the market is arbitrage-free. In the process, we analyse -- in the most general context -- the impact of stochastic variables on the P&L of a hedged port…
The study finds flaws in methods used to estimate foreign exchange option prices.
Study optimizes option pricing with robust strategies, ensuring consistency with vanilla option prices.
We consider the problem of finding a consistent upper price bound for exotic options whose payoff depends on the stock price at two different predetermined time points (e.g. Asian option), given a finite number of observed call prices for these maturities. A model-free approach is used, only taking into account that th…
Study of gamma-hedging using rough paths for European and exotic options.
Second-order optimization speeds up deep hedging for complex options.
A major drawback of the Standard Heston model is that its implied volatility surface does not produce a steep enough smile when looking at short maturities. For that reason, we introduce the Stationary Heston model where we replace the deterministic initial condition of the volatility by its invariant measure and show,…
A hybrid framework prices options using neural networks and VAE latent space.
Study finds adding more information to robust option pricing does not improve bounds.
This paper explores the vol-of-vol parameter in the Heston model and its relation to VVIX.
We derive analytic series representations for European option prices in polynomial stochastic volatility models. This includes the Jacobi, Heston, Stein-Stein, and Hull-White models, for which we provide numerical case studies. We find that our polynomial option price series expansion performs as efficiently and accura…
Barrier options are one of the most widely traded exotic options on stock exchanges. In this paper, we develop a new stochastic simulation method for pricing barrier options and estimating the corresponding execution probabilities. We show that the proposed method always outperforms the standard Monte Carlo approach an…
We study Vanna-Volga methods which are used to price first generation exotic options in the Foreign Exchange market. They are based on a rescaling of the correction to the Black-Scholes price through the so-called `probability of survival' and the `expected first exit time'. Since the methods rely heavily on the approp…
We develop a method to study the implied volatility for exotic options and volatility derivatives with European payoffs such as VIX options. Our approach, based on Malliavin calculus techniques, allows us to describe the properties of the at-the-money implied volatility (ATMI) in terms of the Malliavin derivatives of t…
Quantization algorithms have been successfully adopted to option pricing in finance thanks to the high convergence rate of the numerical approximation. In particular, very recently, recursive marginal quantization has been proven to be a flexible and versatile tool when applied to stochastic volatility processes. In th…
Weighted Monte Carlo prices exotic options calibrating the probabilities of previously generated paths by a regular Monte Carlo to fit a set of option premiums. When only vanilla call and put options and forward prices are considered, the Martingale condition might not be preserved. This paper shows that this is indeed…
We present a path integral method to derive closed-form solutions for option prices in a stochastic volatility model. The method is explained in detail for the pricing of a plain vanilla option. The flexibility of our approach is demonstrated by extending the realm of closed-form option price formulas to the case where…
Deep Hedging removes drift for cleaner option pricing.
This paper presents hedging strategies for European and exotic options in a Levy market. By applying Taylor's Theorem, dynamic hedging portfolios are con- structed under different market assumptions, such as the existence of power jump assets or moment swaps. In the case of European options or baskets of European optio…
In this paper we investigate model-independent bounds for exotic options written on a risky asset. Based on arguments from the theory of Monge-Kantorovich mass-transport we establish a dual version of the problem that has a natural financial interpretation in terms of semi-static hedging. In particular we prove that th…
Variational autoencoders help estimate missing volatility data.
Continuous-time random walks are a well suited tool for the description of market behaviour at the smallest scale: the tick-to-tick evolution. We will apply this kind of market model to the valuation of perpetual American options: derivatives with no maturity that can be exercised at any time. Our approach leads to opt…
An important but rarely-addressed option pricing question is how to choose appropriate strikes for implied volatility inputs when pricing more exotic multi-asset derivatives. By means of Malliavin Calculus we construct an optimal log-linear strikevconvention for exchange options under stochastic volatility models. This…
In the framework of Black-Scholes-Merton model of financial derivatives, a path integral approach to option pricing is presented. A general formula to price European path dependent options on multidimensional assets is obtained and implemented by means of various flexible and efficient algorithms. As an example, we det…
Since Hobson's seminal paper [D. Hobson: Robust hedging of the lookback option. In: Finance Stoch. (1998)] the connection between model-independent pricing and the Skorokhod embedding problem has been a driving force in robust finance. We establish a general pricing-hedging duality for financial derivatives which are s…
We propose a novel algorithm which allows to sample paths from an underlying price process in a local volatility model and to achieve a substantial variance reduction when pricing exotic options. The new algorithm relies on the construction of a discrete multinomial tree. The crucial feature of our approach is that -- …
In a discrete-time market, we study model-independent superhedging, while the semi-static superhedging portfolio consists of {\it three} parts: static positions in liquidly traded vanilla calls, static positions in other tradable, yet possibly less liquid, exotic options, and a dynamic trading strategy in risky assets …