We present a Lie algebraic technique for the valuation of multi-asset financial derivatives with time-dependent parameters. Exploiting the dynamical symmetry of the pricing partial differential equations of the financial derivatives, the new method enables us to derive analytical closed-form pricing formulae very straightforwardly. We believe that this new approach will provide an efficient and...

We propose a new approach to the analytical approximation of transition densities typically arising in finance. This allows to obtain an expansion of the price of financial derivatives using as starting point the classical Black&Scholes formula. Explicit error estimates for the expansion truncated at any order are available. A numerical test is presented and possible applications to Monte Carlo...

Arora, Barak, Brunnermeier, and Ge [ABBG10] showed that taking computational complexity into account, a dishonest seller could increase the lemon costs of a family of financial derivatives dramatically. We show that if the seller is required to construct derivatives of a certain form, then this phenomenon disappears. In particular, we define and construct pseudorandom derivative families, for w...

With a constant new stream of financial services coming to the market, each often more exotic and complicated than the last, the financial services industry, which includes commodity derivatives exchanges, brokerage houses and banks providing price risk reduction services (the so-called hedging services), is one of the fastest growing industries. In order to assure survival, these companies sho...

In the existing literature, the ‘virtual’ nature of financial derivatives is often commented upon, but how these products are brought into being has seldom been examined in any depth. This article analyzes the development since 1970 of organized financial-derivatives trading in the U.S. and U.K. (in particular, of derivatives exchanges and of the British financial spread-betting industry), with...

Financial derivatives are financial instruments whose payoff is linked to some fundamental financial assets or indices. They are essential tools for speculation and risk-management. This paper focuses on the pricing of a common type of derivatives: convertible bonds (CBs), which incorporate the features of both bonds and stocks. Chambers and Lu propose a popular two-factor tree model for CBs pr...

In March of this year, Barings Bank Plc collapsed as a result of losses incurred by its subsidiary, Barings Futures (Singapore), on equity derivatives positions taken on the Singapore and Osaka futures exchanges. This episode follows several well publicised losses associated with derivatives which involved other financial institutions and some corporate and government bodies abroad. These losse...