Abstract. In this article we study arithmetic Asian options when the underlying stock is driven by special semimartingale processes. We show that the inherently path dependent problem of pricing Asian options can be transformed into a problem without path dependency in the payoff function. We also show that the price satisfies a simpler integro-differential equation in the case the stock price ...

We investigate the pricing of risk-neutral skewness in the stock options market by creating skewness assets comprised of two option positions (one long and one short) and a position in the underlying stock. The assets are created such that exposure to changes in the underlying stock price (delta) and exposure to changes in implied volatility (vega) are removed, isolating the effect of skewness....

The regression of stock returns on predictive variables, such as dividend yield, has proven useful in optimal portfolio selection when investment opportunities are timevarying. Conditional versions of factor models impose a restriction on that regression, thereby implying a particular portfolio choice. The study examines several pricing models from a perspective of conditional mean-variance opt...

We introduce a model that captures the main properties that characterize employee stock options (ESO), in particular, the likelihood of early voluntary exercise and the obligation to exercise immediately if the employee leaves the firm, except if this happens before options are vested, in which case the options are forfeited. We derive an analytic formula for the price of the ESO and analyze it...

Survey evidence suggests that many investors form beliefs about future stock market returns by extrapolating past returns. Such beliefs are hard to reconcile with existing models of the aggregate stock market. We study a consumption-based asset pricing model in which some investors form beliefs about future price changes in the stock market by extrapolating past price changes, while other inves...

Uncertain process is an important tool tomodel dynamic uncertain systems. This paper proposes a special type of uncertain processes, named contour processes, whose sample paths can be classified by their inverse uncertainty distributions. It is shown that the set of contour processes is closed under the extreme value operator and the time integral operator as well as the monotone function. As a...

We consider a generic market model with a single stock and with random volatility. We assume that there is a number of tradable options for that stock with different strike prices. The paper states the problem of finding a pricing rule that gives BlackScholes price for at-money options and such that the market is arbitrage free for any number of tradable options, even if there are two Brownian ...

In this paper, we provide an option pricing formula based on an arbitrarily given stock distribution, where the problem of optimally hedging the payoo on a European call option is considered through a self-nancing trading strategy. An optimal hedging problem is solved on a trinomial lattice by assigning suitable probabilities on the lattice, where the underlying stock price distribution is deri...