Option pricing
Dealing with discrete dividends
Over the past year, we have published several papers on the issue of options on stocks with discrete dividends. At least three distinct models are used by practitioners, involving trade-offs between accuracy and tractability. Here, Remco Bos, Alexander…
Mean-reverting smiles
Commodity markets such as crude oil exhibit mean reversion as well as option smiles. The authors construct a model suitable for pricing exotic options in these markets
Exotic spectra
Eigenfunction expansions can also be applied to finance. The method is particularly suited to barrier and Asian options, with convergence properties that compare favourably with Monte Carlo.
The need for hybrid models
In response to the above article, the authors argue that pure firm-value approaches to default prediction are fundamentally flawed.?
Black-Scholes goes hypergeometric
Option pricing models
Hedge your Monte Carlo
Option pricing
Optional events and jumps
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