Abstract In this paper, we introduce a new interpolation method for call option prices and implied volatilities with respect to the strike, which first generates, for fixed maturity, an implied volatility curve that is smooth and free of static arbitrage. Our interpolation method is based on a...

Kolodko and Schoenmakers (2006) and Bender and Schoenmakers (2006) introduced a policy iteration that allows the achievement of a tight lower approximations of the price for early exercise options via a nested Monte Carlo simulation in a Markovian setting. In this paper we enhance the algorithm...

We apply theoretical results by Peng on supersolutions for Backward SDEs (BSDEs) to the problem of finding optimal superhedging strategies in a generalized Black–Scholes market under constraints. Constraints may be imposed simultaneously on wealth process and portfolio. They may be non-convex,...

We introduce a forward scheme for simulating backward SDEs. Compared to existing schemes, ours avoids high order nestings of conditional expectations backwards in time. In this way the error, when approximating the conditional expectation, depending on the time partition, is significantly...

We consider fractional Brownian motions BtH with arbitrary Hurst coefficients 0H1 and prove the following results: (i) An integral representation of the fractional white noise as generalized Wiener integral; (ii) an Itô formula for generalized functionals of BtH; (iii) an analogue of Tanaka's...