We present an Hilbert space formulation for a set of implied volatility models introduced in \cite{BraceGoldys01} in which the authors studied conditions for a family of European call options, varying the maturing time and the strike price $T$ an $K$, to be arbitrage free. The arbitrage free...

Here we develop an option pricing method for European options based on the Fourier-cosine series, and call it the COS method. The key insight is in the close relation of the characteristic function with the series coefficients of the Fourier-cosine expansion of the density function. In most...

We prove that the Heston volatility is Malliavin differentiable under the classical Novikov condition and give an explicit expression for the derivative. This result guarantees the applicability of Malliavin calculus in the framework of the Heston stochastic volatility model. Furthermore we...

Here we develop an option pricing method for European options based on the Fourier-cosine series, and call it the COS method. The key insight is in the close relation of the characteristic function with the series coefficients of the Fourier-cosine expansion of the density function. In most...

This paper generalizes the nonparametric approach to option pricing of Stutzer (1996) by demonstrating that the canonical valuation methodology in- troduced therein is one member of the Cressie-Read family of divergence mea- sures. While the limiting distribution of the alternative measures is...

This paper provides evidence of the role of sentiments in pricing Indian CNX Nifty index call Option during the period from April 2002 to December 2008. It also shows that Black-Scholes option pricing model using the implied volatility of previous day is pricing the Index options much closer to...

People think by analogies and comparisons. Such way of thinking, termed coarse thinking by Mullainathan et al [Quarterly Journal of Economics, May 2008] is intuitively very appealing. We derive a new option pricing formula based on the assumption that the market consists of coarse thinkers as...

In derivatives modelling, it has often been necessary to make assumptions about the volatility of the underlying variable over the life of the contract. This can involve specifying an exact trajectory, as in the Black and Scholes (1973), Merton (1973) or Black (1976) models; one that depends on...

A new alternative diffusion model for asset price movements is presented. In contrast to the popular approach of Brownian motion it proposes deterministic diffusion for the modelling of stock price movements. These diffusion processes are a new area of physical research and can be created by the...

A fast and accurate method for pricing early exercise and certain exotic options in computational finance is presented. The method is based on a quadrature technique and relies heavily on Fourier transformations. The main idea is to reformulate the well-known risk-neutral valuation formula by...