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The aim of this paper is to obtain the valuation formulas for European and barrier options if the underlying of the option contract is supposed to be driven by a fractional Brownian motion with Hurst parameter greater than 0.5. The paper is build upon the framework developed in Necula (2007) for...
Persistent link: https://www.econbiz.de/10014213489
. Based on Malliavin calculus an accurate analytic approximation is also derived for the correction term incorporating impacts …
Persistent link: https://www.econbiz.de/10014105696
closed-form approximation by a mixture of three Black-Scholes prices, which can be calibrated to index options data and used …
Persistent link: https://www.econbiz.de/10013251128
Taking into account default risk in the valuation of financial derivatives has become increasingly important, especially after the 2007-2008 financial crisis. Under some assumptions, the valuation of financial derivatives, including a value adjustment to account for default risk (the so-called...
Persistent link: https://www.econbiz.de/10013250547
are compared with those obtained from the closed-form approximation formulae of Kirk (1995), Venkatramanan and Alexander …
Persistent link: https://www.econbiz.de/10013250549
diffusion model. We demonstrate that, with the quadratic spline collocation method, the integral approximation in the pricing …
Persistent link: https://www.econbiz.de/10013250550
Modelling correlation between financial quantities is important in the accurate pricing of financial derivatives. In this paper, we introduce some stochasticity in correlation, by considering a regime-switching correlation model, in which the transition rates between regimes are given. We...
Persistent link: https://www.econbiz.de/10013250551
We describe a broad setting under which, for European options, if the underlying asset form a geometric random walk then, the error with respect to the Black-Scholes model converges to zero at a speed of 1/n for continuous payoffs functions, and at a speed of 1/√n for discontinuous payoffs...
Persistent link: https://www.econbiz.de/10012998163
In this paper we implement the method of Feynman path integral for the analysis of option pricing for certain L'evy process driven financial markets. For such markets, we find closed form solutions of transition probability density functions of option pricing in terms of various special...
Persistent link: https://www.econbiz.de/10013000092
We apply a new numerical method, the singular Fourier-Pade (SFP) method invented by Driscoll and Fornberg (2001, 2011), to price European-type options in Levy and affine processes. The motivation behind this application is to reduce the ineffciency of current Fourier techniques when they are...
Persistent link: https://www.econbiz.de/10012967045