In this article, we account for the liquidity risk in the underlying assets when pricing European exchange options, which has not been considered in the literature. An Ornstein-Uhlenbeck process with the mean -reversion property is selected to model the ma ...
We characterize the unique equilibrium in an economy populated by strategic CARA investors who trade multiple risky assets with arbitrarily distributed payoffs. We use our explicit solution to study the joint behavior of illiquidity of option contracts. Op ...
Options are some of the most traded financial instruments and computing their price is a central task in financial mathematics and in practice. Consequently, the development of numerical algorithms for pricing options is an active field of research. In gen ...
We introduce a novel stochastic volatility model where the squared volatility of the asset return follows a Jacobi process. It contains the Heston model as a limit case. We show that the joint density of any finite sequence of log-returns admits a Gram–Cha ...
This thesis presents new flexible dynamic stochastic models for the evolution of market prices and new methods for the valuation of derivatives. These models and methods build on the recently characterized class of polynomial jump-diffusion processes for w ...
We report evidence that the co-movements of index options and index futures quotes differ sharply from perfect correlation in periods with option trades. In half-hour intervals with (without) option trades 25% (12%) of call option quote changes have either ...
Treating high dimensionality is one of the main challenges in the development of computational methods for solving problems arising in finance, where tasks such as pricing, calibration, and risk assessment need to be performed accurately and in real-time. ...
When a strict local martingale is projected onto a subfiltration to which it is not adapted, the local martingale property may be lost, and the finite variation part of the projection may have singular paths. This phenomenon has consequences for arbitrage ...
We introduce a novel class of term structure models for variance swaps. The multivariate state process is characterized by a quadratic diffusion function. The variance swap curve is quadratic in the state variable and available in closed form, greatly faci ...
