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.
The study reveals unspanned risks in equity option risk premiums, explaining negative premiums for certain options.
New model for options pricing accounting for time-varying interest rates, volatility, and equity premium.
Unified framework matches equity and bond yields.
Study finds option volume imbalance predicts equity market returns.
The article models financial asset returns using Gaussian mixtures and EVT-based copulas to price equity options.
Proposes a new model for equity options calibration.
We construct the term structure of the (forward-looking, US market) equity risk premium from SPX option chains. The method is "model-light". Risk-neutral probability densities are estimated by fitting -component Gaussian mixture models to option quotes, where is a small integer (here 4 or 5). These densities are…
Efficiently calculates Brazilian stock options with discrete dividends.
In the present paper we provide a two-step principal protection strategy obtained by combining a modification of the Constant Proportion Portfolio Insurance (CPPI) algorithm and a classical Option Based Portfolio Insurance (OBPI) mechanism. Such a novel approach consists in assuming that the percentage of wealth invest…
Enhanced indexation uses equity and index options for better performance.
New model values equity-linked securities with guaranteed return.
We construct realistic equity option market simulators based on generative adversarial networks (GANs). We consider recurrent and temporal convolutional architectures, and assess the impact of state compression. Option market simulators are highly relevant because they allow us to extend the limited real-world data set…
The paper solves the skewness problem in high-dimensional basket options.
The paper demonstrates that a pure-diffusion 3/2 model is able to capture the observed upward-sloping implied volatility skew in VIX options. This observation contradicts a common perception in the literature that jumps are required for the consistent modelling of equity and VIX derivatives. The pure-diffusion model, h…
The paper assesses how equity tail risk impacts US Treasury bond returns.
Study examines volatility-based strategy for Chinese ETF options, improving returns in volatile markets.
This paper examines pricing and hedging strategies for cross-currency equity protection swaps.
The paper proposes a new SDF scaled by time-varying volatility from S&P 500 options.
Method calibrates local volatility and stochastic short rate models for equity-rate dynamics.
This work addresses the problem of optimal pricing and hedging of a European option on an illiquid asset Z using two proxies: a liquid asset S and a liquid European option on another liquid asset Y. We assume that the S-hedge is dynamic while the Y-hedge is static. Using the indifference pricing approach we derive a HJ…
Paper proposes an alternative method to price American options using HJM approach.
Study finds stocks with common firm fears earn lower returns.
A RL framework for hedging equity index options with realistic costs.
This paper develops a valuation model for private companies.
The paper optimizes financial derivatives for market completion in SV models.
Equity options are known to be notoriously difficult to price accurately, and even with the development of established mathematical models there are many assumptions that must be made about the underlying processes driving market movements. As such, the theoretical prices outputted by these models are often slightly di…
Calibrates carbon futures option pricing using high-frequency data.
Unified model for equity option pricing and interest-rate risk assessment.
Efficient method for pricing multi-asset options with local volatility.
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…
Study evaluates hedging strategies for S&P500 index options.
In this paper we provide evidence that financial option markets for equity indices give rise to non-trivial dependency structures between its constituents. Thus, if the individual constituent distributions of an equity index are inferred from the single-stock option markets and combined via a Gaussian copula, for examp…
We study the problem of optimal pricing and hedging of a European option written on an illiquid asset using a set of proxies: a liquid asset , and liquid European options , each written on a liquid asset . We assume that the -hedge is dynamic while the multi-name -hedge is static. Usin…
Valuation adjustments are nowadays a common practice to include credit and liquidity effects in option pricing. Funding costs arising from collateral procedures, hedging strategies and taxes are added to option prices to take into account the production cost of financial contracts so that a profitability analysis can b…
We examine optimal quadratic hedging of barrier options in a discretely sampled exponential Lévy model that has been realistically calibrated to reflect the leptokurtic nature of equity returns. Our main finding is that the impact of hedging errors on prices is several times higher than the impact of other pricing bias…
In some options markets (e.g. commodities), options are listed with only a single maturity for each underlying. In others, (e.g. equities, currencies), options are listed with multiple maturities. In this paper, we provide an algorithm for calibrating a pure jump Markov martingale model to match the market prices of Eu…
This paper deals with a fundamental subject that has seldom been addressed in recent years, that of market impact in the options market. Our analysis is based on a proprietary database of metaorders-large orders that are split into smaller pieces before being sent to the market on one of the main Asian markets. In line…
Paper examines floating exercise boundaries for American options in time-inhomogeneous models.
Marketron model extended to option markets, solving incomplete market challenges.
In this paper, we develop a 4/2 stochastic volatility plus jumps model, namely, a new stochastic volatility model including the Heston model and 3/2 model as special cases. Our model is highly tractable by applying the Lie symmetries theory for PDEs, which means that the pricing procedure can be performed efficiently. …
We use a continuous version of the standard deviation premium principle for pricing in incomplete equity markets by assuming that the investor issuing an unhedgeable derivative security requires compensation for this risk in the form of a pre-specified instantaneous Sharpe ratio. First, we apply our method to price opt…
Study uses deep learning for efficient hedging of long-term financial derivatives.
We extend the now classic structural credit modeling approach of Black and Cox to a class of "two-factor" models that unify equity securities such as options written on the stock price, and credit products like bonds and credit default swaps. In our approach, the two sides of the stylized balance sheet of a firm, namel…
The paper uses a novel framework to learn option prices by imitating principal investor behavior.
Volatility clustering, long-range dependence, and non-Gaussian scaling are stylized facts of financial assets dynamics. They are ignored in the Black & Scholes framework, but have a relevant impact on the pricing of options written on financial assets. Using a recent model for market dynamics which adequately captures …
iCOS method estimates risk-neutral densities and option prices without model assumptions.
DeltaHedge uses AI to optimize portfolio options trading.
Over the last decade, dividends have become a standalone asset class instead of a mere side product of an equity investment. We introduce a framework based on polynomial jump-diffusions to jointly price the term structures of dividends and interest rates. Prices for dividend futures, bonds, and the dividend paying stoc…