Showing 1 - 10 of 554
This paper treats the risk-averse optimal portfolio problem with consumption in continuous time for a stochastic-jump-volatility, jump-diffusion (SJVJD) model of the underlying risky asset and the volatility. The new developments are the use of the SJVJD model with...
Persistent link: https://www.econbiz.de/10013123110
We introduce two new methods to calculate bounds for zero-sum game options using Monte Carlo simulation. These extend and generalise the duality results of Haugh-Kogan/Rogers and Jamshidian to the case where both parties of a contract have Bermudan optionality. It is shown that the...
Persistent link: https://www.econbiz.de/10013146332
In this paper we study a two-player investment game with a first mover advantage in continuous time with stochastic payoffs, driven by a geometric Brownian motion. One of the players is assumed to be ambiguous with maxmin preferences over a strongly rectangular set of priors. We develop a...
Persistent link: https://www.econbiz.de/10010468336
We study the pricing and hedging of derivative securities with uncertainty about the volatility of the underlying asset. Rather than taking all models from a prespecified class equally seriously, we penalise less plausible ones based on their "distance" to a reference local volatility model. In...
Persistent link: https://www.econbiz.de/10011410718
This paper provides a general characterization of subgame-perfect equilibria for a strategic timing problem, where two firms have the (real) option to invest irreversibly in some market. Profit streams are uncertain and depend on the market structure. The analysis of the problem emphasizes its...
Persistent link: https://www.econbiz.de/10011380662
How does the market makers' aversion to unhedgeable risks influence option prices? We answer this question by introducing a new structural approach: deep replication. With this method, we extract the risk aversion of S&P500 options per contract and per day. Cross-sectionally, we show the...
Persistent link: https://www.econbiz.de/10012842211
An ambiguity averse decision-maker contemplates investment of a fixed size capital into a project with a stochastic profit stream under the Knightian uncertainty. Multiple priors are modeled as a "cloud" of diffusion processes with embedded compound Poisson jumps. The "cloud" contains the...
Persistent link: https://www.econbiz.de/10013045142
New methods for solving general linear parabolic partial differential equations (PDEs) in one space dimension are developed. The methods combine quadratic-spline collocation for the space discretization and classical finite differences, such as Crank-Nicolson, for the time discretization. The...
Persistent link: https://www.econbiz.de/10014203451
With the evolution of Graphics Processing Units (GPUs) into powerful and cost-efficient computing architectures, their range of application has expanded tremendously, especially in the area of computational finance. Current research in the area, however, is limited in terms of options priced and...
Persistent link: https://www.econbiz.de/10014223591
This paper analyses the implementation and calibration of the Heston Stochastic Volatility Model. We first explain how characteristic functions can be used to estimate option prices. Then we consider the implementation of the Heston model, showing that relatively simple solutions can lead to...
Persistent link: https://www.econbiz.de/10013005643