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...

Market option prices in last 20 years confirmed deviations from the Black and Scholes (BS) models assumptions, especially on the BS implied volatility. Implied binomial trees (IBT) models capture the variations of the implied volatility known as "volatility smile". They provide a discrete...

Pricing different types of derivative contracts to minimize risk is a significant step for business sustainability. Whaley (2006) refers that for the European Puts and Calls, known as vanilla options, there is a closed form solution that delivers the 'fair' price of the option with respect to...

We propose a new method for the numerical solution of backward stochastic differential equations (BSDEs) which finds its roots in Fourier analysis. The method consists of an Euler time discretization of the BSDE with certain conditional expectations expressed in terms of Fourier transforms and...

As is known, an option price is a solution to a certain partial differential equation (PDE) with terminal conditions (payoff functions). There is a close association between the solution of PDE and the solution of a backward stochastic differential equation (BSDE). We can either solve the PDE to...

The paper deals with the interesting topic of pricing energy structurated products which are traded in OTC market. The paper concentrates on a specific virtual asset, namely virtual power plant (VPP). The paper contains the definition of VPP, a description of the mathematical approach used in...

In this paper, we investigate model-independent bounds for option prices given market instruments.This super-replication problem can be written as a semi-infinite linear programming problem. As these super-replication prices can be large and the densities Q which achieve the upper bounds quite...

In this paper, European put option pricing with stochastic volatility forecasted by well known GARCH model is discussed in context of Indian financial market. The data of Reliance Ltd. stock price from 3/01/2000 to 30/03/2009 is used and resulting partial differential equation is solved by...

We present a fast method to price and hedge CMS spread options in the displaced-diffusion co-initial swap market model. Numerical tests demonstrate that we are able to obtain sufficiently accurate prices and Greeks with computational times measured in milliseconds. Further, we find that CMS...