Results 81 to 90 of about 15,578,858 (194)

Simple Formulas to Option Pricing and Hedging in the Black- Scholes Model [PDF]

For option whose striking price equals the forward price of the underlying asset, the Black-Scholes pricing formula can be approximated in closed-form. A interesting result is that the derived equation is not only very simple in structure but also that ...
paolo pianca
core  

Reinforcement Learning for Jump‐Diffusions, With Financial Applications

Mathematical Finance, EarlyView.
ABSTRACT We study continuous‐time reinforcement learning (RL) for stochastic control in which system dynamics are governed by jump‐diffusion processes. We formulate an entropy‐regularized exploratory control problem with stochastic policies to capture the exploration–exploitation balance essential for RL.
Xuefeng Gao, Lingfei Li, Xun Yu Zhou
wiley   +1 more source

High order compact finite difference schemes for a nonlinear Black-Scholes equation [PDF]

A nonlinear Black-Scholes equation which models transaction costs arising in the hedging of portfolios is discretized semi-implicitly using high order compact finite difference schemes. In particular, the compact schemes of Rigal are generalized.
Michel Fournié, Ansgar Jüngel, Bertram Düring   +2 more
core  

Robust Mean–Variance Portfolio Optimization: Mean–Variance–Variance Criterion Versus Mean–Variance–Standard Deviation Criterion

Mathematical Finance, EarlyView.
ABSTRACT We study a dynamic portfolio optimization problem under the mean–variance–variance (M‐V‐V) criterion proposed by Maccheroni et al. It is an analogue of the Arrow–Pratt approximation to the well‐known smooth ambiguity model. Under the standard Black–Scholes framework, we derive fully explicit equilibrium investment strategies in which a DM's ...
David Landriault, Bin Li, Yuanyuan Zhang
wiley   +1 more source

RISK-FREE INTERNAL GAINS – BLACK AND SCHOLES RE-EXAMINED [PDF]

In this paper we first show that if a not-necessarily-self-financing portfolio has instantaneously riskless internal gains, then on an infinitesimal time-interval, the increase in the internal gains on the portfolio is the same as the change in the price
Gergei Bana
core  

On the Exact Limiting Distribution of a Volatility Target Index

Mathematical Finance, EarlyView.
ABSTRACT Assuming a lognormal distribution for the underlying risky asset, we study the limiting distribution of a volatility target index as the rebalancing time step approaches zero. Two limit theorems (a strong law of large numbers and a central limit theorem) are established, and as an application, the exact limiting distribution is derived.
Xuan Liu, Michel Gauthier
wiley   +1 more source

Information‐Theoretic Approach to Financial Market Modeling

Mathematical Finance, EarlyView.
ABSTRACT The paper treats the financial market as a communication system, using four information‐theoretic assumptions to derive an idealized model with only one parameter. State variables are scalar stationary diffusions. The model maximizes the surprisal of the market and minimizes the Kullback–Leibler divergence between the benchmark‐neutral pricing
Eckhard Platen
wiley   +1 more source

Convergence Numerically of Trinomial Modelin European Option Pricing

International Research Journal of Business Studies, 2014
A European option is a financial contract which gives its holder a right (but not an obligation) to buy or sell an underlying asset from writer at the time of expiry for a pre-determined price.
Entit Puspita, Fitriani Agustina, Ririn Sispiyati   +2 more
doaj  

On Short‐Term Behavior of Implied Volatility for Index Options

Mathematical Finance, EarlyView.
ABSTRACT This paper investigates short‐term behavior of implied volatility of derivatives written on a market index when the index is constructed using a ranking procedure. Even when stock prices follow geometric Brownian motion dynamics, the ranking mechanism can lead to the observed term structure of at‐the‐money (ATM) implied volatility skew for ...
Huy N. Chau, Duy Nguyen, Thai Nguyen
wiley   +1 more source

A Framework for Derivative Pricing in the Fractional Black-Scholes Market [PDF]

The aim of this paper is to develop a framework for evaluating derivatives if the underlying of the derivative contract is supposed to be driven by a fractional Brownian motion with Hurst parameter greater than 0.5.
Ciprian Necula
core