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Polynomial models in finance

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Informed Trading in the Stock Market and Option Price Discovery

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When activist shareholders file Schedule 13D filings, the average excess return on target stocks is 6% and stock price volatility drops by about 10%. Prior to filing days, volatility (price) information is reflected in option (stock) prices. Using a compre ...

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In this paper, we propose a new model for pricing stock and dividend derivatives. We jointly specify dynamics for the stock price and the dividend rate such that the stock price is positive and the dividend rate nonnegative. In its simplest form, the model ...

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The need to evaluate natural resource investments under uncertainty has given rise to the development of real options valuation; however, the analysis of such investments has been restricted by the capabilities of existing valuation approaches. We re-visit ...

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Low-Rank Tensor Approximation for Chebyshev Interpolation in Parametric Option Pricing

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We challenge the view that short-term debt curbs moral hazard and demonstrate that, in a world with financing frictions and fair debt pricing, short-term debt generates incentives for risk-taking. To do so, we develop a model in which firms are financed wi ...

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Most firms face some form of competition in product markets. The degree of competition a firm faces feeds back into its cash flows and affects the values of the securities it issues. Through its effects on stock prices, product market competition affects t ...

OXFORD UNIV PRESS INC2019

We introduce a novel class of credit risk models in which the drift of the survival process of a firm is a linear function of the factors. The prices of defaultable bonds and credit default swaps (CDS) are linear-rational in the factors. The price of a CDS ...

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Numerical methods for option pricing: polynomial approximation and high dimensionality

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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 ...

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