This paper tailors Monte Carlo simulations to the scope of binary options whose underlying dynamics obey jump-diffusion or jump-mean-reverting processes and may not be traded. In the process, the existence of well-defined arbitrage prices is justified notwithstanding a framework of incomplete...

We analyze the errors arising from discrete readjustment of the hedging portfolio when hedging options in exponential Lévy models, and establish the rate at which the expected squared error goes to zero when the readjustment frequency increases. We compare the quadratic hedging strategy with...

This study is a first attempt of investigating a theory of directional pricing. Directional pricing is defined as price or rate designs that apply different prices to selling and buying the concerned goods. A typical example would be rate schedules in the feed-in-tariff (FIT) policy for...

This article deals with the issue of guarantee certificate formation on the financial market. The main objective is to design a new guarantee certificate suitable for conservative investors. We found an alternative opportunity to the purchase of this certificate, i.e. investment in a bank...

The paper focuses on the replication of digital options under an incomplete model. Digital options are regularly applied in the hedging and static decomposition of many path-dependent options. The author examines the performance of static and dynamic replication. He considers the case of a...