American option valuation in a stochastic volatility model with transaction costs

In the present paper we analyse the American option valuation problem in a stochastic volatility model when transaction costs are taken into account. We shall show that it can be formulated as a singular stochastic optimal control problem, proving the existence and uniqueness of the viscosity solution for the associated Hamilton–Jacobi–Bellman partial differential equation. Moreover, after performing a dimensionality reduction through a suitable choice of the utility function, we shall provide a numerical example illustrating how American options prices can be computed in the present modelling framework.     

Continuous sampling plans for Markov-dependent production processes under limited inspection capacity

A continuous sampling plan is a set of rules that provide a given Average Outgoing Quality (AOQ), ideally with the minimum of effort (as measured by the Average Fraction Inspected, or AFI). Most such plans are based on the assumption that the quality (either defective or not) of successive production units is uncorrelated. In this paper, we explore the impact of correlation in the production process on the design of a sampling plan when it is not possible to inspect long runs of production unit-by-unit. We shall generalize Dodge's continuous sampling plan on two counts, replacing Level 1 100% inspection by 100f_o% inspection, and considering the production process to be Markov dependent instead of consisting of independent Bernoulli trials. We derive formulae for the AOQ and AFI, and consider how best to choose the sampling plan parameters in the presence of nonzero correlation.     

A new predictor-corrector scheme for valuing American puts

In this paper, we present a new numerical scheme, based on the finite difference method, to solve American put option pricing problems. Upon applying a Landau transform or the so-called front-fixing technique [19] to the Black-Scholes partial differential equation, a predictor-corrector finite difference scheme is proposed to numerically solve the nonlinear differential system. Through the comparison with Zhu’s analytical solution [35], we shall demonstrate that the numerical results obtained from the new scheme converge well to the exact optimal exercise boundary and option values. The results of our numerical examples suggest that this approach can be used as an accurate and efficient method even for pricing other types of financial derivative with American-style exercise.     

The American put is log-concave in the log-price

We show that the American put option price is log-concave as a function of the log-price of the underlying asset. Thus the elasticity of the price decreases with increasing stock value. We also consider related contracts of American type, and we provide an example showing that not all American option prices are log-concave in the stock log-price.     

The convergence of fully discrete Galerkin approximations of the Rosenau equation

In this paper, we shall analyze the fully discrete Galerkin type approximations to solutions of the Rosenau equation. We provide the numerical results of several cases.     

Remark on a lower diameter bound for compact shrinking Ricci solitons

In this paper, inspired by Fernández-López and García-Río [11], we shall give a new lower diameter bound for compact non-trivial shrinking Ricci solitons depending on the range of the potential function, as well as on the range of the scalar curvature. Moreover, by using a universal lower diameter bound for compact non-trivial shrinking Ricci solitons by Chu and Hu [7] and by Futaki, Li, and Li [13], we shall provide a new sufficient condition for four-dimensional compact non-trivial shrinking Ricci solitons to satisfy the Hitchin–Thorpe inequality. Furthermore, we shall give a new lower diameter bound for compact self–shrinkers of the mean curvature flow depending on the norm of the mean curvature. We shall also prove a new gap theorem for compact self–shrinkers by showing a necessary and sufficient condition to have constant norm of the mean curvature.     

The Valuation of American Options with Stochastic Stopping Time Constraints

Abstract

This paper concerns the pricing of American options with stochastic stopping time constraints expressed in terms of the states of a Markov process. Following the ideas of Menaldi et al., we transform the constrained into an unconstrained optimal stopping problem. The transformation replaces the original payoff by the value of a generalized barrier option. We also provide a Monte Carlo method to numerically calculate the option value for multidimensional Markov processes. We adapt the Longstaff–Schwartz algorithm to solve the stochastic Cauchy–Dirichlet problem related to the valuation problem of the barrier option along a set of simulated trajectories of the underlying Markov process.     

General Inhomogeneous Discrete Linear Partial Differential Equations with Constant Coefficients on the Whole Spaces

In this paper we shall introduce new constructions of approximate solutions of general linear partial differential equations with constant coefficients on the whole spaces, and establish fundamental estimates of the solutions depending on the inhomogeneous terms. This will be done by combining general ideas of the Tikhonov regularization and discretization of bounded linear operator equations on reproducing kernel Hilbert spaces. Furthermore, we will provide approximate solutions for the related inverse source problems.     

Robust exponential stabilization for large-scale uncertain impulsive systems with coupling time-delays

In this paper, we aim to study robust exponential stabilization for a large-scale uncertain impulsive system with coupling time-delays. Furthermore, we also provide an estimation of the rate of convergence of exponential stabilization. By utilizing the Lyapunov method and Razumikhin technique, we shall design the feedback hybrid controllers in terms of linear matrix inequalities under which the robust exponential stability is achieved for a closed-loop large-scale uncertain impulsive system with coupling time-delays. Moreover, we shall also use the results obtained to design impulsive controllers for a large-scale uncertain continuous system under which the closed-loop continuous system achieves robust and exponential stability. To illustrate our results, one example is solved.     

Oscillation and Global Attractivity in a Nonlinear Delay Periodic Model of Population Dynamics

In this article we shall consider the following nonlinear delay differential equation $$x'(t) + p(t)x(t)-\frac {q(t)x(t)}{r + x^{n}(t-m\omega )} = 0\eqno (*)$$ where m and n are positive integers, p ( t ) and q ( t ) are positive periodic functions of period y . In the nondelay case we shall show that (*) has a unique positive periodic solution $ \overline {x}(t), $ and provide sufficient conditions for the global attractivity of $ \overline {x}(t) $ . In the delay case we shall present sufficient conditions for the oscillation of all positive solutions of (*) about $ \overline {x}(t), $ and establish sufficient conditions for the global attractivity of $ \overline {x}(t). $     

Bond pricing under a Markovian regime-switching jump-augmented Vasicek model via stochastic flows

In this article, we shall explore the state of art of stochastic flows to derive an exponential affine form of the bond price when the short rate process is governed by a Markovian regime-switching jump-diffusion version of the Vasicek model. We provide the flexibility that the market parameters, including the mean-reversion level, the volatility rate and the intensity of the jump component switch over time according to a continuous-time, finite-state Markov chain. The states of the chain may be interpreted as different states of an economy or different stages of a business cycle. We shall provide a representation for the exponential affine form of the bond price in terms of fundamental matrix solutions of linear matrix differential equations.     

Computing the Volume of n-Dimensional Copulas

Abstract

A problem that is very relevant in applications of copula functions to finance is the computation of the survival copula, which is applied to enforce multivariate put–call parity. This may be very complex for large dimensions. The problem is a special case of the more general problem of volume computation in high-dimensional copulas. We provide an algorithm for the exact computation of the volume of copula functions in cases where the copula function is computable in closed form. We apply the algorithm to the problem of computing the survival of a copula function in the pricing problem of a multivariate digital option, and we provide evidence that this is feasible for baskets of up to 20 underlying assets, with acceptable CPU time performance.     

A Note on the Almansi Property

The first goal of this note is to study the Almansi property on an m-dimensional model in the sense of Greene and Wu and, more generally, in a Riemannian geometric setting. In particular, we shall prove that the only model on which the Almansi property is verified is the Euclidean space \({\mathbb R}^m\). In the second part of the paper we shall study Almansi’s property and biharmonicity for functions which depend on the distance from a given submanifold. Finally, in the last section we provide an extension to the semi-Euclidean case \({\mathbb R}^{p,q}\) which includes the proof of the classical Almansi property in \({\mathbb R}^m\) as a special instance.     

A Stochastic Programming Model for Currency Option Hedging

In this paper we use a stochastic programming approach to develop currency option hedging models which can address problems with multiple random factors in an imperfect market. The portfolios considered in our model are rebalanced at the end of each time period, and reinvestments are allowed during the hedging process. These sequential decisions (reinvestments) are based on the evolution of random parameters such as exchange rates, interest rates, etc. We also allow the inclusion of a variety of instruments in the hedging portfolio, including short term derivative securities, short term options, and futures. These instruments help generate strategies that provide good liquidity and low trade intensity. One of the important features of the model is that it incorporates constraints on sensitivity measures such as Delta and Gamma. By ensuring that these hedge parameters track a desired trajectory (e.g., the parameters of a target option), the new model provides investment strategies that are robust with respect to the perturbations measured by Delta and Gamma. In order to manage the explosion of scenarios due to multiple random factors, we incorporate sampling within a scenario aggregation algorithm. We illustrate that when compared with other myopic hedging methods in imperfect markets, the new stochastic programming model can provide better performance. Our examples also illustrate stochastic programming as a practical computational tool for realistic hedging problems.     

Revuz measures under time change

In this paper, we shall study how energy functionals and Revuz measures change under time change of Markov processes and provide an intuitive and direct approach to the computation of the Levy system and jumping measure of time changed process.     

on stability criterion of complete intersections

For protective varieties, it is known that Chow stable implies N-th Hilbert-Mumford stable for N sufficiently large, which follows from the works of J. Fogarty [2, 6]. In this article, we firstly shall provide a simple criterion for Chow stability of complete intersections. The criterion for Chow stability was previously provided by Mumford [5], but our calculation is different from Mumford’s in that ours is based on the results of Zhang’s article [10]. Applying it, we secondly shall give an elementary proof of the above implications in a complete intersections case.     

Classroom note: The cardinality of even perfect numbers

We provide an existential proof of the fact that there are infinitely many even perfect numbers. For this we shall use some basic concepts of arithmetic and other known results (without proof) of classical Number Theory.     

Identification of an inverse source problem for time‐fractional diffusion equation with random noise

In this paper, we consider an inverse source problem for a time fractional diffusion equation. In general, this problem is ill posed, therefore we shall construct a regularized solution using the filter regularization method in the random noise case. We will provide appropriate conditions to guarantee the convergence of the approximate solution to the exact solution. Then, we provide examples of filters in order to obtain error estimates for their approximate solutions. Finally, we present a numerical example to show efficiency of the method.     

On conformal solutions of the Yamabe flow

The aim of this note is to define almost Yamabe solitons as special conformal solutions of the Yamabe flow. Moreover, we shall obtain some rigidity results concerning Yamabe almost solitons. Finally, we shall give some characterizations for homogeneous gradient Yamabe almost solitons.