URL: www.thejournalofcomputationalfinance.com High-dimensional problems frequently arise in the pricing of derivative securities – for example, in pricing options on multiple underlying assets and in pricing term structure derivatives. American versions of these options, ie, where the owner has the right to exercise early, are particularly challenging to price. We introduce a stochastic mesh me...

We price moneyness-based portfolio returns on the LIBOR futures options in an Intertemporal CAPM framework as an extension of the pricing kernel approach. In contrast to existing studies for pricing index options, our results show that only the real interest rate is significant in the pricing kernel for LIBOR options. The polynomial pricing kernel with linear interpretation outperforms the iso-...

A previous paper (West 2005) tackled the issue of calculating accurate uni-, biand trivariate normal probabilities. This has important applications in the pricing of multi-asset options, e.g. rainbow options. In this paper, we derive the Black–Scholes prices of several styles of (multi-asset) rainbow options using change-of-numeraire machinery. Hedging issues and deviations from the Black-Schol...

How to price options efficiently and accurately is an important research problem. Options can be priced by the lattice model. Although the pricing results converge to the theoretical option value, the prices do not converge monotonically. Worse, for some options like barrier-options, the prices can oscillate significantly. Thus, large computational time may be required to achieve acceptable acc...

Pricing Asian options based on the arithmetic average, under the Black and Scholes model, involves estimating an integral (a mathematical expectation) for which no analytical solution is available. Pricing their American-style counterparts, which provide early exercise opportunities, poses the additional difficulty of solving a dynamic optimization problem to determine the optimal exercise stra...

We consider options that pay the complexity deficiency of a sequence of up and down ticks of a stock upon exercise. We study the price of European and American versions of this option numerically for automatic complexity, and theoretically for Kolmogorov complexity. We also consider run complexity, which is a restricted form of automatic complexity.

in this paper, installment options on the underlying assetwhich evolves according to black-scholes model and pays constant dividendto its owner will be considered. applying arbitrage pricing theory,the non-homogeneous parabolic partial differential equation governingthe value of installment option is derived. then, penalty method is usedto value the european continuous installment call option.

In this work, we propose to price Parisian options using Laplace transforms. Not only, do we compute the Laplace transforms of all the different Parisian options, but we also explain how to invert them numerically. We discuss the accuracy of the numerical inversion and present the evolution of the Greeks through a few graphs.

The technological advances in recent years are allowing Internet Service Providers (ISPs) to provide Quality of Service (QoS) assurance for traffic through their domains. This article develops a spot pricing framework for intra-domain expected bandwidth contract with'a loss based QoS guarantee. The framework accounts for both the cost and the risks associated with QoS delivery. A nonlinear pric...

Researchers have reported mispricing in index options markets. This study further examines the efficiency of the S&P 500 index options market by testing theoretical pricing relationships implied by no-arbitrage conditions. The effect of a traded stock basket, Standard and Poor’s Depository Receipts (SPDRs), on the link between index and options markets is also examined. Pricing efficiency withi...