Currency-translated foreign equity options (quanto options) are designed for investors who would like to manage different types of risk in international equity investments. The terminal payoffs of quanto options depend on the price of a foreign currency denominated asset (or stock index) and the exchange rate in different combinations of choices. This paper presents a systematic framework to de...

The main objective of this paper is to propose an alternative valuation framework for pricing foreign currency and cross-currency options, which is capable of accommodating existing empirical regularities. The paper generalizes the GARCH option pricing methodology of Duan (1995) to a two-country setting. Specifically, we assume a bivariate nonlinear GARCH system for the exchange rate and the fo...

The Internet today offers primarily a best-effort service. Research and technology development efforts are currently underway to allow provisioning of better than besteffort Quality of Service (QoS) assurances. In this article, we develop a spot pricing framework for intradomain expected bandwidth contracts with loss based QoS guarantees. The framework builds on a nonlinear pricing scheme for c...

This paper uses S&P 500 index options data to examine whether proxies of investor sentiment, or aggregate errors in investor beliefs, affect option prices and asset pricing kernel. I find that when market sentiment becomes more bearish (resp. bullish), both index option smile and asset pricing kernel are more (resp. less) negatively sloped. These relations are statistically and economically sig...

Consumers are commonly required to subscribe to particular tariff options before uncertainty regarding their future purchases gets resolved. Since the general comparison of welfare performance of different pricing mechanisms is ambiguous, this paper empirically evaluates the expected welfare associated to standard nonlinear pricing and optional tariffs by using information directly linked to th...

In this paper, we develop a robust numerical method in pricing options, when the underlying asset follows a jump diffusion model. We demonstrate that, with the quadratic spline collocation method, the integral approximation in the pricing PIDE is intuitively simple, and comes down to the evaluation of the probabilistic moments of the jump density. When combined with a Picard iteration scheme, t...

In this paper, installment options on the underlying asset which evolves according to Black-Scholes model and pays constant dividend to its owner will be considered. Applying arbitrage pricing theory, the non-homogeneous parabolic partial differential equation governing the value of installment option is derived. Then, penalty method is used to value the European continuous installment call opt...

The duality principle in option pricing aims at simplifying valuation problems that depend on several variables by associating them to the corresponding dual option pricing problem. Here we analyze the duality principle for options that depend on several assets. The asset price processes are driven by general semimartingales, and the dual measures are constructed via an Esscher transformation. ...

The pricing of options on futures has generated much recent interest from both an academic as well as a trading persp ctive. These conti gent claims provide new avenues for the allocation of price risk among investors and have been well received by the financial markets. For example, options on Treasury bond futures began trading at the Chicago Board of Trade in 1982 and have been a very succes...