Arithmetic Asian Options under Stochastic Delay Models

Abstract

Motivated by the increasing interest in past-dependent asset pricing models, shown in recent years by market practitioners and prominent authors such as Hobson and Rogers (1998 Hobson, D. and Rogers, L. C. G. 1998. Complete models with stochastic volatility. Mathematical Finance, 8(1): 27–48.  [Google Scholar], Complete models with stochastic volatility, Mathematical Finance, 8(1), pp. 27–48), we explore option pricing techniques for arithmetic Asian options under a stochastic delay differential equation approach. We obtain explicit closed-form expressions for a number of lower and upper bounds and compare their accuracy numerically.     

Non–existence of theta–shaped self–similarly shrinking networks moving by curvature

We prove that there are no networks homeomorphic to the Greek “Theta” letter (a double cell) embedded in the plane with two triple junctions with angles of 120 degrees, such that under the motion by curvature they are self–similarly shrinking.

This fact completes the classification of the self–similarly shrinking networks in the plane with at most two triple junctions, see [5 Chen, X., Guo, J.-S. (2007). Self-similar solutions of a 2-D multiple-phase curvature flow. Phys. D. 229(1):22–34.[Crossref], [Web of Science ®] , [Google Scholar], 10 Hättenschweiler, J. (2007). Mean curvature flow of networks with triple junctions in the plane. Master’s thesis. ETH Zürich. [Google Scholar], 25 Schnürer, O. C., Azouani, A., Georgi, M., Hell, J., Nihar, J., Koeller, A., Marxen, T., Ritthaler, S., Sáez, M., Schulze, F., Smith, B. (2011). Evolution of convex lens–shaped networks under the curve shortening flow. Trans. Am. Math. Soc. 363(5):2265–2294.[Crossref], [Web of Science ®] , [Google Scholar], 2 Baldi, P., Haus, E., Mantegazza, C. (2016). Networks self-similarly moving by curvature with two triple junctions. Networks self-similarly moving by curvature with two triple junctions. 28(2017):323–338. [Google Scholar]].     

Static Replication of Forward-Start Claims and Realized Variance Swaps

Abstract

The goal of this work is to examine the static replication of path-dependent derivatives such as realized variance swaps, using more standard products such as forward-start binary (i.e. digital) double calls and puts. We first examine, following Carr and Madan (2002 Carr, P. and Madan, D. 2002. “Towards a theory of volatility trading”. In Volatility: New Estimation Techniques for Pricing Derivatives Edited by: Jarrow, R. A. 417–427. (London: Risk Publication). [Google Scholar]), the static replication of path-independent claims with continuous and discontinuous payoff functions. Subsequently, the static replication of forward-start claims with payoffs given by a bivariate function of finite variation is examined. We postulate that certain forward-start binary (or barrier) options are traded. The work concludes by an application of our general results to the static hedging of a realized variance swap with forward-start binary (or barrier) options.     

A Regularized Hybrid Steepest Descent Method for Variational Inclusions

This article is concerned with a generalization of the hybrid steepest descent method from variational inequalities to the multivalued case. This will be reached by replacing the multivalued operator by its Yosida approximate, which is always Lipschitz continuous. It is worth mentioning that the hybrid steepest descent method is an algorithmic solution to variational inequality problems over the fixed point set of certain nonexpansive mappings and has remarkable applicability to the constrained nonlinear inverse problems like image recovery and MIMO communication systems (see, e.g., [9 I. Yamada , M. Yukawa , and M. Yamagishi ( 2011 ). Minimizing the moreau envelope of nonsmooth convex functions over the fixed point set of certain quasi-nonexpansive mappings . In Fixed Point Algorithms for Inverse Problems in Science and Engineering ( H.H. Bauschke , R. Burachik , P.L. Combettes , V. Elser , D.R. Luke , and H. Wolkowicz , eds.), Springer-Verlag , New York , Chapter 17 , pp. 343 – 388 . [Google Scholar], 10 I. Yamada , Ogura , and N. Shirakawa ( 2002 ). A numerically robust hybrid steepest descent method for the convexly constrained generalized inverse problems . In Inverse Problems, Image Analysis and Medical Imaging. Contemporary Mathematics ( Z. Nashed and O. Scherzer , eds.), American Mathematical Society , Providence , RI , Vol. 313 , pp. 269 – 305 . [Google Scholar]]).     

Stochastic Expansion for the Pricing of Call Options with Discrete Dividends

Abstract

In the context of an asset paying affine-type discrete dividends, we present closed analytical approximations for the pricing of European vanilla options in the Black–Scholes model with time-dependent parameters. They are obtained using a stochastic Taylor expansion around a shifted lognormal proxy model. The final formulae are, respectively, first-, second- and third- order approximations w.r.t. the fixed part of the dividends. Using Cameron–Martin transformations, we provide explicit representations of the correction terms as Greeks in the Black–Scholes model. The use of Malliavin calculus enables us to provide tight error estimates for our approximations. Numerical experiments show that this approach yields very accurate results, in particular compared with known approximations of Bos, Gairat and Shepeleva (2003 Bos, R., Gairat, A. and Shepeleva, D. 2003. Dealing with discrete dividends. Risk Magazine, 16: 109–112.  [Google Scholar], Dealing with discrete dividends, Risk Magazine, 16, pp. 109–112) and Veiga and Wystup (2009 Veiga, C. and Wystup, U. 2009. Closed formula for options with discrete dividends and its derivatives. Applied Mathematical Finance, 16(6): 517–531. [Taylor & Francis Online] , [Google Scholar], Closed formula for option with discrete dividends and its derivatives, Applied Mathematical Finance, 16(6), pp. 517–531), and quicker than the iterated integration procedure of Haug, Haug and Lewis (2003 Haug, E. G., Haug, J. and Lewis, A. 2003. Back to basics: a new approach to the discrete dividend problem. Wilmott Magazine, : 37–47.  [Google Scholar], Back to basics: a new approach to the discrete dividend problem, Wilmott Magazine, pp. 37–47) or than the binomial tree method of Vellekoop and Nieuwenhuis (2006 Vellekoop, M. and Nieuwenhuis, J. 2006. Effcient pricing of derivatives on assets with discrete dividends. Applied Mathematical Finance, 13(3): 265–284. [Taylor & Francis Online] , [Google Scholar], Efficient pricing of derivatives on assets with discrete dividends, Applied Mathematical Finance, 13(3), pp. 265–284).     

Unifying strongly clean power series rings

It is unknown whether a power series ring over a strongly clean ring is, itself, always strongly clean. Although a number of authors have shown that the above statement is true in certain special cases, the problem remains open, in general. In this article, we look at a class of strongly clean rings, which we call the optimally clean rings, over which power series are strongly clean. This condition is motivated by work in [10 Diesl, A. J., Dorsey, T. J., Garg, S., Khurana, D. (2012). A note on completeness and strongly clean rings, preprint. [Google Scholar]] and [11 Diesl, A. J., Dorsey, T. J., Iberkleid, W., LaFuente-Rodriguez, R., McGovern, W (2013). Strongly clean triangular matrices over abelian rings, preprint. [Google Scholar]]. We explore the properties of optimally clean rings and provide many examples, highlighting the role that this new class of rings plays in investigating the question of strongly clean power series.     

On the Characterization of f-Ideals

In this paper, we give the characterization of unmixed f-ideals of degree d ≥ 2 generalizing the results given in [1 Abbasi , G. Q. , Ahmad , S. , Anwar , I. , Baig , W. A. ( 2012 ). f-Ideals of degree 2. Algebra Colloquium 19 (Spec 1):921–926 . [Google Scholar]].     

Construction of CPs-Stratified Algebras

The results of [7 Dlab , V. , Ringel , C. M. ( 1992 ). The module theoretical approach to quasi-hereditary algebras. In: Tachikawa, H., Brenner, S. eds. Representations of Algebras and Related Topics, London Math. Society Lecture Note Series 168:200–224 . [Google Scholar]] and [2 Ágoston , I. , Dlab , V. , Lukács , E. ( 2011 ). Constructions of stratified algebras . Comm. Algebra 39 : 2545 – 2553 .[Taylor &; Francis Online], [Web of Science ®] , [Google Scholar]] gave a recursive construction for all quasi-hereditary and standardly stratified algebras starting with local algebras and suitable bimodules. Using the notion of stratifying pairs of subcategories, introduced in [3 Ágoston , I. , Lukács , E. Stratifying pairs of subcategories for CPS-stratified algebras . To appear in Journal of Algebra and Its Applications , p. 11 . [Google Scholar]], we generalize these earlier results to construct recursively all CPS-stratified algebras.     

Splitting of operations for alternative and Malcev structures

In this paper, we define pre-Malcev algebras and alternative quadri-algebras and prove that they generalize pre-Lie algebras and quadri-algebras, respectively, to the alternative setting. We use the results and techniques from [4 Bai, C., Bellier, O., Guo, L., Ni, X. (2013). Splitting of operations, Manin products, and Rota-Baxter operators. Int. Math. Res. Not. 2013(3):485–524. [Google Scholar], 14 Gubarev, V. Y., Kolesnikov, P. S. (2013). Embedding of dendriform algebras into Rota-Baxter algebras. Cent. Eur. J. Math. 11(2):226–245.[Crossref], [Web of Science ®] , [Google Scholar]] to discuss and give explicit computations of different constructions in terms of bimodules, splitting of operations, and Rota–Baxter operators.     

Mass-Selection in Alignment Models with Non-Deterministic Effects

In this paper we consider a kinetic model for alignment of cells or filaments with probabilistic turning. For this equation existence of solutions is known, see [6 Kang , K. , Perthame , B. , Stevens , A. , Velazquez , J. J. L. ( 2009 ). An integro- differential equation model for alignment and orientational aggregation . J. Diff Equations 246 : 1387 – 1421 . [Google Scholar]]. To understand its qualitative behavior, especially with respect to the selection of orientations and mass distributions for long times, the model is approximated by a diffusion equation in the limit of small deviations of the interactions between the cell bundles. For this new equation existence of steady states is shown. In contrast to the kinetic equation discussed in [6 Kang , K. , Perthame , B. , Stevens , A. , Velazquez , J. J. L. ( 2009 ). An integro- differential equation model for alignment and orientational aggregation . J. Diff Equations 246 : 1387 – 1421 . [Google Scholar]] with deterministic turning, where local stability of two opposite orientations was shown but no selection of mass could be observed, for the new approximating problem with probabilistic turning additionally mass selection takes place. In the limit of small diffusion, steady states can only be constructed, if the aligning masses are either equal or the total mass is concentrated in one direction. By numerical simulations we tested stability of these steady states and for situations with 4 symmetrically placed smooth distributions of alignment. Convergence of the numerical code was proved. The simulations suggest, that only the 2- and the 1-peak steady states can be stable, whereas the 4 peak steady state is always unstable. We conjecture that the noise in the system is responsible for this final selection of masses. There exist other steady states with an arbitrary number of aligned bundles of cells or filaments, but we suspect that, as numerically shown for the 4 peak case, these multi-peak states are all unstable.