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.
The study finds no evidence of stochastic arbitrage opportunities in S&P 500 index options.
New model for options pricing accounting for time-varying interest rates, volatility, and equity premium.
New volatility model for option pricing with time-varying risk premium.
Study on pricing American Exchange options using Lévy processes.
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…
Proposes a new model to price options considering market forces beyond Black-Scholes.
We revisit the problem of pricing options with historical volatility estimators. We do this in the context of a generalized GARCH model with multiple time scales and asymmetry. It is argued that the reason for the observed volatility risk premium is tail risk aversion. We parametrize such risk aversion in terms of thre…
The paper proposes a new SDF scaled by time-varying volatility from S&P 500 options.
Proposes deep hedging for index options using implied volatility surface.
Study finds stocks with common firm fears earn lower returns.
A time-dependent double-barrier option is a derivative security that delivers the terminal value at expiry if neither of the continuous time-dependent barriers $b_\pm:[0,T]\to \RR_+$ have been hit during the time interval . Using a probabilistic approach we obtain a decomposition of the barrier opti…
Study geometric step options with jumps, deriving pricing equations and characterizations.
The risk premium is one of main concepts in mathematical finance. It is a measure of the trade-offs investors make between return and risk and is defined by the excess return relative to the risk-free interest rate that is earned from an asset per one unit of risk. The purpose of this article is to determine upper and …
Efficiently calculates Brazilian stock options with discrete dividends.
This paper is devoted to the pricing of Barrier options by optimal quadratic quantization method. From a known useful representation of the premium of barrier options one deduces an algorithm similar to one used to estimate nonlinear filter using quadratic optimal functional quantization. Some numerical tests are fulfi…
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 formulate and analyze an inverse problem using derivatives prices to obtain an implied filtering density on volatility's hidden state. Stochastic volatility is the unobserved state in a hidden Markov model (HMM) and can be tracked using Bayesian filtering. However, derivative data can be considered as conditional ex…
In this paper, we extend the 3/2-model for VIX studied by Goard and Mazur (2013) and introduce the generalized 3/2 and 1/2 classes of volatility processes. Under these models, we study the pricing of European and American VIX options and, for the latter, we obtain an early exercise premium representation using a free-b…
We derive representations of local risk-minimization of call and put options for Barndorff-Nielsen and Shephard models: jump type stochastic volatility models whose squared volatility process is given by a non-Gaussian rnstein-Uhlenbeck process. The general form of Barndorff-Nielsen and Shephard models includes two par…
In this paper analytic formulas for electricity derivatives are calculated. To this end, we assume that electricity spot prices follow a 3-regime Markov regime-switching model with independent spikes and drops and periodic transition matrix. Since the classical derivatives pricing methodology cannot be used in case of …
The option is a financial derivative, which is regularly employed in reducing the risk of its underlying securities. However, investing in option is still risky. Such risk becomes much severer for speculators who utilize option as a means of leverage to increase their potential returns. In order to mitigate risk on the…
The article provides representations of exchange option prices under SVJD dynamics.
Study shows physical drift affects put-call parity enforcement, not just option payoffs.
The paper solves a pricing problem for a multiple reset put option using integral equations.
CapOptix uses options theory to price capacity in electricity markets.
In the paper, we propose a new calculation scheme for American options in the framework of a forward backward stochastic differential equation (FBSDE). The well-known decomposition of an American option price with that of a European option of the same maturity and the remaining early exercise premium can be cast into t…
This paper improves financial derivative pricing by incorporating multiple hedging instruments.
According to the volatility feedback effect, an unexpected increase in squared volatility leads to an immediate decline in the price-dividend ratio. In this paper, we consider the properties of stock price dynamics and option valuations under the volatility feedback effect by modeling the joint dynamics of stock price,…
The accuracy of least squares calibration using option premiums and particle filtering of price data to find model parameters is determined. Derivative models using exponential Lévy processes are calibrated using regularized weighted least squares with respect to the minimal entropy martingale measure. Sequential impor…
The present article provides a novel theoretical way to evaluate tradeability in markets of ordinary exponential Lévy type. We consider non-tradeability as a particular type of market illiquidity and investigate its impact on the price of the assets. Starting from an adaption of the continuous-time optional asset repla…
We perform wavelet decomposition of high frequency financial time series into large and small time scale components. Taking the FTSE100 index as a case study, and working with the Haar basis, it turns out that the small scale component defined by most ( 99.6%) of the wavelet coefficients can be neglected for th…
We study the optimal timing of derivative purchases in incomplete markets. In our model, an investor attempts to maximize the spread between her model price and the offered market price through optimally timing her purchase. Both the investor and the market value the options by risk-neutral expectations but under diffe…
This study examines how earnings announcements affect option volatility and pricing.
A new method for pricing exchange options under stochastic volatility and jumps.
Characterization of the American put option price is still an open issue. From the beginning of the nineties there exists a non-closed formula for this price but nontrivial numerical computations are required to solve it. Strong efforts have been done to propose methods more and more computationally efficient but most …
A variable annuity is an equity-linked financial product typically offered by insurance companies. The policyholder makes an upfront payment to the insurance company and, in return, the insurer is required to make a series of payments starting at an agreed upon date. For a higher premium, many insurance companies offer…
We present a new approach for the pricing of interest rate derivatives which allows a direct computation of option premiums without deriving a (Black-Scholes type) partial differential equation and without explicitly solving the stochastic process for the underlying variable. The approach is tested by rederiving the pr…
This paper discusses the valuation of credit default swaps, where default is announced when the reference asset price has gone below certain level from the last record maximum, also known as the high-water mark or drawdown. We assume that the protection buyer pays premium at fixed rate when the asset price is above a p…
Study pricing of American put options with stochastic interest rate and finite maturity.
New method uses Hermite polynomials for American option valuation.
Enhances financial risk quantification in classical models.
This paper develops a CVaR framework for managing tail risks using puts and trend-following strategies.
This paper presents a novel analysis of two feed-in tariffs (FIT) under market and regulatory uncertainty, namely a sliding premium with cap and floor and a minimum price guarantee. Regulatory uncertainty is modeled with a Poisson process, whereby a jump event may reduce the tariff before the signature of the contract.…
The price of a stock will rarely follow the assumed model and a curious investor or a Regulatory Authority may wish to obtain a probability model the prices support. A risk neutral probability for the stock's price at time is determined in closed form from the prices before without assuming a price…
Spot option prices, forwards and options on forwards relevant for the commodity markets are computed when the underlying process S is modelled as an exponential of a process ξ with memory as e.g. a Lévy semi-stationary process. Moreover a risk premium \r{ho} representing storage costs, illiquidity, convenience yield or…
We investigate the relation between the fair price for European-style vanilla options and the distribution of short-term returns on the underlying asset ignoring transaction and other costs. We compute the risk-neutral probability density conditional on the total variance of the asset's returns when the option expires.…
Paper improves American option valuation in complex models.