The paper uses moment matching method for pricing spread options under Lévy models.
problem Pricing spread options under Lévy models with mean-variance mixture.
method Moment matching method applied to Lévy models with mean-variance mixture.
result Obtains semi-closed form formulas for spread option prices.
Study analyzes price response and spread impact in foreign exchange markets.
problem Understanding deviations from Markovian behavior in foreign exchange markets.
method Detailed large-scale data analysis of price response functions for different years and time scales, using pip bid-ask spread definition.
result Large pip spreads significantly impact price response in foreign exchange markets.
The study compares how deletions and trades affect stock prices and spread changes.
problem Understanding the impact of deletions and trades on stock prices and spread changes.
method Examined the frequencies of relative amounts of price changing events due to trades, deletions, and order placements.
result Deletions of orders open the bid-ask spread more often than trades and have a similar effect on prices as trades.
The paper prices energy spread options using a complex stochastic model.
problem Pricing energy spread options with specific stochastic dynamics.
method Uses an exponential Ornstein-Uhlenbeck process driven by variance gamma processes, applying the Esscher transform and FFT method.
result Derives an analytical formula for pricing forwards and spread options.
Improved spread option pricing with a new approximation method.
problem Inaccuracies in the original Kirk's formula for high correlation cases.
method Developed a new approximation method for spread option pricing.
result The Modified Kirk's Approximation method is extremely accurate and improves upon Kirk's approach.
Study liquidity impact on spread option pricing.
problem Imperfect liquidity in stock markets affects option pricing.
method Developed partial-impact and full-impact models to analyze European spread options.
result Full impact model leads to higher option prices due to increased stock buying.
Model prices and hedges exotic S&P index derivatives with bid-ask spreads.
problem Pricing and hedging exotic derivatives in markets with bid-ask spreads and finite quantities.
method Develops a model using convex optimisation for fast computation of prices and hedging portfolios.
result Optimized static hedges provide good approximations of options payouts and narrow spreads.
New formula for efficient spread option pricing in copula markets.
problem Efficient pricing of spread options in markets with correlated assets.
method Unified approach using copula functions and numerical integration.
result Proposes a method requiring only one-dimensional integral evaluations.
Paper models and forecasts intra-day electricity price spreads.
problem Forecasting intra-day price spreads for electricity traders and operators.
method Dynamic density functions based on skewed-t distributions, conditional on exogenous drivers.
result Best fitting and forecasting specifications selected using Pinball Loss function.
We study the relationship between price spread, volatility and trading volume. We find that spread forms as a result of interplay between order liquidity and order impact. When trading volume is small adding more liquidity helps improve price accuracy and reduce spread, but after some point additional liquidity begins …
Model predicts bid and ask price dynamics with spread-dependent intensities.
problem Predicting bid and ask price dynamics in high-frequency stock markets.
method Extended Hawkes process with zero intensities, spread-dependent intensities, and negative excitement.
result Spread-narrowing tendency, excitations caused by previous events, impact of flash crashes, and different market participant features.
Model prices sovereign contingent convertible bonds during crises.
problem Pricing Sovereign Contingent Convertible bonds (S-CoCo) during crises.
method Model CDS spread regime switching as a hidden Markov process, coupled with a mean-reverting stochastic process. Use Longstaff-Schwartz American option pricing framework for simulation.
result Computed future state contingent S-CoCo prices for risk management.
We derive the price of a spread option based on two assets which follow a bivariate volatility modulated Volterra process dynamics. Such a price dynamics is particularly relevant in energy markets, modelling for example the spot price of power and gas. Volatility modulated Volterra processes are in general not semimart…
Kriging predicts futures prices by accounting for trends and bid-ask spreads.
problem Predicting futures prices with trends and bid-ask spreads.
method Bayesian Kriging technique to model term structure.
result Kriging accurately predicts futures prices with embedded trends and bid-ask spreads.
A new relaxed framework for pricing illiquid derivatives using bid-ask spreads.
problem Pricing illiquid derivatives with realistic bounds and hedging prices.
method Introducing Bid--Ask Martingale Optimal Transport (BAMOT) that relaxes the exact calibration of model marginals to mid-prices of vanilla options.
result BAMOT yields realistic price bounds and superhedging prices for illiquid derivatives.
Alternative closed-form formula for spread call option prices under log-normal models.
problem Valuation of spread call options under log-normal models.
method Developed an alternative closed-form formula for spread call option prices.
result Our formula performs better for certain range of model parameters than existing closed-form formula.
The statistical properties of the bid-ask spread of a frequently traded Chinese stock listed on the Shenzhen Stock Exchange are investigated using the limit-order book data. Three different definitions of spread are considered based on the time right before transactions, the time whenever the highest buying price or th…
The paper explains how to construct a credit spread curve from bond prices.
problem The challenge of constructing a credit spread curve from bond prices.
method Fit parametrised survival curves to construct the curve, avoiding the Z-spread issue.
result A concise treatment of the high-dollar price bonds trading at higher yields is explained.
Spread options are a fundamental class of derivative contract written on multiple assets, and are widely used in a range of financial markets. There is a long history of approximation methods for computing such products, but as yet there is no preferred approach that is accurate, efficient and flexible enough to apply …
A new model predicts bid-ask spread dynamics in financial markets.
problem Capturing the self-exciting nature of bid-ask spread changes.
method State-dependent Spread Hawkes model (SDSH) incorporating various spread jump sizes and current state impact.
result The SDSH model accurately forecasts spread values at short-term horizons.
Study quantifies how COVID-19 spread affects US stock markets.
problem Impact of COVID-19 on US stock market during pandemic.
method Developed a novel temporal complex network approach using econometric and ML models.
result Local spread of COVID-19 and Google searches impact abnormal stock prices.
The paper develops Hawkes-based models for LOB and applies them to European, spread, and basket option pricing.
problem Developing accurate models for pricing options in the context of limit order books (LOB).
method Introduces multivariate Hawkes processes and their limit theorems, applies to European, spread, and basket options.
result Hawkes-based models provide more market forecast information than classical models.
New method calibrates crypto option prices more robustly.
problem Large bid-ask spreads and missing quotes in crypto markets.
method Designs a novel calibration procedure for crypto options.
result Calibration is more robust and accurate than standard methods.
Microstructure of market dynamics is studied through analysis of tick price data. Linear trend is introduced as a tool for such analysis. Trend arbitrage inequality is developed and tested. The inequality sets limiting relationship between trend, bid-ask spread, market reaction and average update frequency of price inf…
Model predicts and optimizes trading of electricity price spreads across multiple zones.
problem Forecasting and optimizing day-ahead versus real-time price spreads in U.S. electricity markets.
method Unified statistical model for positive and negative spikes, structural price impact model based on bid stacks.
result Optimal trading strategy improves risk-return profile and highlights market heterogeneity.
This paper examines the problem of pricing spread options under some models with jumps driven by Compound Poisson Processes and stochastic volatilities in the form of Cox-Ingersoll-Ross(CIR) processes. We derive the characteristic function for two market models featuring joint normally distributed jumps, stochastic vol…
Quantum theory explains price dynamics in financial markets, capturing bid-ask spread and ergodicity.
problem Nature of price formation in financial markets and bid-ask spread dynamics.
method Developed a quantum coupled-wave theory using a 2x2 price operator with eigenvalues representing bid and ask prices.
result The theory adequately models bid-ask spread and directional price movement due to quantum-chaotic interaction.
Given a finite set of European call option prices on a single underlying, we want to know when there is a market model which is consistent with these prices. In contrast to previous studies, we allow models where the underlying trades at a bid-ask spread. The main question then is how large (in terms of a deterministic…
Large tick assets, i.e. assets where one tick movement is a significant fraction of the price and bid-ask spread is almost always equal to one tick, display a dynamics in which price changes and spread are strongly coupled. We introduce a Markov-switching modeling approach for price change, where the latent Markov proc…
Develops a framework for consistent pricing of interest rate derivatives.
problem Consistent pricing of bivariate interest rate exotics across interconnected markets.
method Schrödinger optimal transport problem with constraints.
result Demonstrates practical applicability and no-arbitrage bounds computation.
We price weather-contingent options by use of Monte Carlo simulations. After calibrating the models to fit quoted prices, we analyze bid-ask spreads in terms of correlations across markets. Results are presented for a double-trigger Weather vs. Natural Gas call option.
Study examines new financial metrics and their implications for trading and risk management.
problem Liquidity and price dynamics in financial markets.
method High-frequency trading data, ARMA(1,1)-GARCH(1,1) model, normal inverse Gaussian distribution, option pricing model, Rachev ratio.
result New financial metrics (TMOBBAS, GMP) have heavy-tailed distributions and significant deviations from normality.
In our empirical study, we examine the price of liquid stocks after experiencing a large intraday price change using data from the NYSE and the NASDAQ. We find significant reversal for both intraday price decreases and increases. The results are stable against varying parameters. While on the NYSE the large widening of…
This paper performs the numerical analysis and the computation of a Spread option in a market with imperfect liquidity. The number of shares traded in the stock market has a direct impact on the stock's price. Thus, we consider a full-feedback model in which price impact is fully incorporated into the model. The price …
We derive a continuous time model for the joint evolution of the mid price and the bid-ask spread from a multiscale analysis of the whole limit order book (LOB) dynamics. We model the LOB as a multiclass queueing system and perform our asymptotic analysis using stylized features observed empirically. We argue that in t…
Model shows phase transitions in asset pricing with market maker incentives.
problem Analyzing asset pricing with market maker profit incentives.
method Stochastic game theory, neural networks.
result Equilibrium experiences three phases: linear pricing, mid-price with spread, and metastable state.
Market makers reduce price spread in a simple limit order book model.
problem Unrealistically large spread in a simple limit order book model.
method Introduced market makers that place both buy and sell limit orders at current bid and ask prices.
result Market makers reduce spread to a rate that closes it completely.
Continuous-time model shows how trading affects asset prices and optimizes investment strategies.
problem Modeling financial markets with transient price impact and optimal trading strategies.
method Establishes a continuous-time duality involving measures with martingales and a liquidity weighted norm.
result Optimality of buy-and-hold strategies for call options and utility maximizing investment strategies proved.
The paper optimizes daily storage trading of electricity using dynamic spread densities.
problem Optimizing daily storage trading of electricity based on price spreads.
method Formulated dynamic density functions based on skewed-t representations to model hourly electricity price spreads. Selected the best specification for each spread using the Pinball Loss function and calculated risk associated with spread arbitrages.
result Optimal daily operation of a battery storage facility determined from spread densities.
AXI assesses bank funding costs transparently, improving loan pricing and reducing financial risk.
problem Lack of credit-sensitive funding benchmarks after LIBOR transition.
method AXI aggregates unsecured funding transactions across maturities, producing a daily credit spread.
result AXI correlates with financial conditions and market stress, reducing funding risk and offering spread discounts.
This paper uses RL to optimize bid-ask spreads for illiquid corporate bonds.
problem Optimizing bid-ask spreads for illiquid corporate bonds.
method Data-driven approach using Reinforcement Learning.
result Trained RL agent's behavior shows reasonable optimal bid-ask spreads.
Study evaluates different price response definitions for NASDAQ stocks.
problem Understanding the long-lasting effects of trading activity on stock prices.
method Examined two different price response implementations for NASDAQ Trades and Quotes (TAQ) data.
result Results are qualitatively the same for two different time scale definitions, but response can vary by up to a factor of two.
A simple Ising spin model which can describe the mechanism of price formation in financial markets is proposed. In contrast to other agent-based models, the influence does not flow inward from the surrounding neighbors to the center site, but spreads outward from the center to the neighbors. The model thus describes th…
A small investor provides liquidity at the best bid and ask prices of a limit order market. For small spreads and frequent orders of other market participants, we explicitly determine the investor's optimal policy and welfare. In doing so, we allow for general dynamics of the mid price, the spread, and the order flow, …
While market is a social field where information flows over the interacting agents, there have been not so many methods to observe the spreading information in the prices comprising the market. By incorporating the entropy transfer in information theory in its relation to the Granger causality, the paper proposes a tre…
Blockchain smart contracts reduce uncertainty but create price spreads.
problem Asymmetric information in traditional markets is reduced by blockchain technology, but it also creates price differences.
method Analyzed the impact of smart contracts on market segmentation and consumer welfare.
result Marginal innovation in smart contracts has non-monotonic effects on trading value and consumer welfare.
New approximations for Asian basket spread options using stochastic Taylor expansions.
problem Pricing Asian basket spread options under the Black-Scholes model.
method Stochastic Taylor expansion applied to a log-normal proxy model.
result Highly accurate approximations for Asian and spread options, without numerical integration.
Optimal timing strategy for mean-reverting price spreads.
problem Trading price spreads with mean-reverting characteristics.
method Sequential optimal stopping framework with refined signature method.
result Precise entry and exit timings that maximize gains.