This paper presents a tractable model of non-linear dynamics of market returns using a Langevin approach.Due to non-linearity of an interaction potential, the model admits regimes of both small and large return fluctuations. Langevin dynamics are mapped onto an equivalent quantum mechanical (QM)...

We consider calibration of log-normal stochastic volatility model and computation of option delta consistently with statistical dynamics of the asset price and its implied volatility surface. We introduce the concept of volatility skew-beta which serves as an empirical adjustment for empirical...

Quantitative structuring is a rigorous framework for the design of financial products. We show how it incorporates traditional investment ideas while supporting a more accurate expression of clients' views. We touch upon adjacent topics regarding the safety of financial derivatives and the role...

It has been recently shown that spot volatilities can be very well modeled by rough stochastic volatility type dynamics. In such models, the log-volatility follows a fractional Brownian motion with Hurst parameter smaller than 1/2. This result has been established using high frequency volatility...

Pricing kernels implicit in option prices play a key role in assessing the risk aversion over equity returns. We deal with non-parametric estimation of the pricing kernel (Empirical Pricing Kernel) given by the ratio of the risk-neutral density estimator and the subjective density estimator. The...

A Markovian Projection is investigated for the Local Stochastic Volatility Libor Market Model. An approximation based on the Log Normal process is introduced. In this approximation, the Markovian Projection is fitted to the CEV model rather than to Displaced Diffusion. The relationship with a...

We use the ideas of American Monte Carlo methods to develop a fast approximate pricing of FX target redemption forwards. One possible application for this are XVA simulations. We give numerical examples using the QuantLib pricing library

We derive risk-neutral option price formulas for plain-vanilla and exotic electricity futures derivatives on the basis of diverse arithmetic multi-factor Ornstein-Uhlenbeck spot price models admitting seasonality. In these setups, we take additional forward-looking knowledge on future price...

We derive risk-neutral option price formulas for plain-vanilla temperature futures derivatives on the basis of several multi-factor Ornstein-Uhlenbeck temperature models which allow for seasonality in the mean level and volatility. Our main innovation consists in an incorporation of omnipresent...

Recent work showed that securities prices behave as quantum chaotic quantities that described by quantum equations. We study pricing of European style options under that framework. The resulting volatility surface exhibits the smile and other characteristics of equity options. Additionally, we...