A Non-Gaussian Pricing Model for Structured Products

Computational Methods for Pricing Structured Products

[points] 1. Consider the Cheuk-Vorst algorithm for pricing floating strike lookback put options. The truncated binomial tree for the process is constructed for Y t = S max t S t , Y t ≥ 1. Let V n j denote the numerical approximation to V t = V t /S t at the (n, j) th node of the binomial tree for Y t , where Y t = u j , j ≥ 0. (i) Explain how to derive the binomial formula V n j = e −r∆t [p V ...

A Non-Gaussian Option Pricing Model with Skew

Closed form option pricing formulae explaining skew and smile are obtained within a parsimonious non-Gaussian framework. We extend the non-Gaussian option pricing model of L. Borland (Quantitative Finance, 2, 415-431, 2002) to include volatility-stock correlations consistent with the leverage effect. A generalized Black-Scholes partial differential equation for this model is obtained, together ...

A Theory of Non-Gaussian Option Pricing

A generalized option-pricing formula is found, based on a nonGaussian stock price model. The dynamics of the underlying stock are assumed to follow a stochastic process with anomalous nonlinear diffusion, phenomenologically modelled as a statistical feedback process within the framework of the generalized thermostatistics proposed by Tsallis. A generalized form of the Black-Scholes differential...

Dynamic Pricing Model for Substitutable Products

A dynamic pricing model in airline seat allocation, where a seller offers two substitutable perishable products in the monopolist market, is proposed in this article. The objective is to maximize the total profit gained from both products. We analyze the problem using a multinomial logit model to describe the customer choice behavior. The exact solution is obtained according to the calculated o...

Products and Sums of Tree-Structured Gaussian Processes