带固定比例交易费率的跳扩散欧式期权的定价

考虑市场存在交易费率的跳扩散欧式期权的定价问题.由于交易费的存在使得传统的对冲方法不适用,我们将该问题转化为两元的随机控制问题.证明了带固定比例交易费率的跳扩散欧式期权的价格是对应的积分微分不等方程的约束粘性解,并通过马尔科夫链对变分问题进行离散,证明了在粘性意义下离散方法的收敛性.最后给出了数值结果.     

Computation and analysis for a constrained entropy optimization problem in finance

In [T. Coleman, C. He, Y. Li, Calibrating volatility function bounds for an uncertain volatility model, Journal of Computational Finance (2006) (submitted for publication)], an entropy minimization formulation has been proposed to calibrate an uncertain volatility option pricing model (UVM) from market bid and ask prices. To avoid potential infeasibility due to numerical error, a quadratic penalty function approach is applied. In this paper, we show that the solution to the quadratic penalty problem can be obtained by minimizing an objective function which can be evaluated via solving a Hamilton–Jacobian–Bellman (HJB) equation. We prove that the implicit finite difference solution of this HJB equation converges to its viscosity solution. In addition, we provide computational examples illustrating accuracy of calibration.     

Viscosity solutions and the pricing of European-style options in a Markov-modulated exponential Lévy model

ABSTRACT

In this paper, we investigate the pricing problem of a European-style contingent claim under a Markov-modulated exponential Lévy model. One of the main feature of this model is the modulator factor which takes into account the empirical facts observed in asset prices dynamics such as the long-term (stochastic) variability and time inhomogeneities. Using the viscosity solutions framework, we show that the value of a European-style option is the unique viscosity solution of a system of coupled linear Partial Integro-Differential Equations when the payoff function satisfies a Lipschitz condition. Moreover, we propose a numerical scheme for approximating solution of this system and discuss its stability, consistency and convergence.     

Dynamic pricing for perishable items with costly price adjustments

Dynamic pricing is widely adopted in inventory management for perishable items, and the corresponding price adjustment cost should be taken into account. This work assumes that the price adjustment cost comprises of a fixed component and a variable one, and attempts to search for the optimal dynamic pricing strategy to maximize the firm’s profit. However, considering the fixed price adjustment cost turns this dynamic pricing problem to a non-smooth optimal control problem which cannot be solved directly by Pontryagin’s maximum principle. Hence, we first degenerate the original problem into a standard optimal control problem and calculate the corresponding solution. On the basis of this solution, we further propose a suboptimal pricing strategy which simultaneously combines static pricing and dynamic pricing strategies. The upper bound of profit gap between the suboptimal solution and the optimal one is obtained. Numerical simulation indicates that the suboptimal pricing strategy enjoys an efficient performance.     

Optimal stopping of switching diffusions with state dependent switching rates

This paper is concerned with a continuous-time and infinite-horizon optimal stopping problem in switching diffusion models. In contrast to the assumption commonly made in the literature that the regime-switching is modeled by an independent Markov chain, we consider in this paper the case of state-dependent regime-switching. The Hamilton–Jacobi–Bellman (HJB) equation associated with the optimal stopping problem is given by a system of coupled variational inequalities. By means of the dynamic programming (DP) principle, we prove that the value function is the unique viscosity solution of the HJB system. As an interesting application in mathematical finance, we examine the problem of pricing perpetual American put options with state-dependent regime-switching. A numerical procedure is developed based on the DP approach and an efficient discrete tree approximation of the continuous asset price process. Numerical results are reported.     

Convergence of the Explicit Difference Scheme and the Binomial Tree Method for American Options

This paper is concerned with numerical methods for American option pricing. We employ numerical analysis and the notion of viscosity solution to show uniform convergence of the explicit difference scheme and the binomial tree method. We also prove the existence and convergence of the optimal exercise boundaries in the above approximn.tions.     

Viscosity Solutions of Integro-Differential Equations and Passport Options in a Jump-Diffusion Model

We study the viscosity solutions of integro-differential Hamilton–Jacobi–Bellman equations of degenerate parabolic type. These equations are from the pricing problem for the European passport options in a jump-diffusion model. The passport option is a call option on a trading account. We discuss the mathematical model for pricing problem. We prove the comparison principle, uniqueness and convexity preserving for the viscosity solutions of related pricing equations.     

A numerical scheme for the impulse control formulation for pricing variable annuities with a guaranteed minimum withdrawal benefit (GMWB)

In this paper, we outline an impulse stochastic control formulation for pricing variable annuities with a guaranteed minimum withdrawal benefit (GMWB) assuming the policyholder is allowed to withdraw funds continuously. We develop a numerical scheme for solving the Hamilton–Jacobi–Bellman (HJB) variational inequality corresponding to the impulse control problem. We prove the convergence of our scheme to the viscosity solution of the continuous withdrawal problem, provided a strong comparison result holds. The scheme can be easily generalized to price discrete withdrawal contracts. Numerical experiments are conducted, which show a region where the optimal control appears to be non-unique.     

Black-Scholes期权定价模型的五点式混合差分方法

研究了欧式看涨期权定价问题的差分方法,将Black-Scholes方程等价代换为标准抛物型偏微分方程,在时间方向上采用前、后差商,空间方向上采用五点差分格式,再引入参数θ建立一个稳定的混合差分格式.根据Von Neumann条件证明了该格式的稳定性及收敛性,并通过数值计算的实际应用,结果表明该算法适用于到期日较长的期权...     

Convergence of the binomial tree method for Asian options in jump-diffusion models

The binomial tree methods (BTM), first proposed by Cox, Ross and Rubinstein [J. Cox, S. Ross, M. Rubinstein, Option pricing: A simplified approach, J. Finan. Econ. 7 (1979) 229-264] in diffusion models and extended by Amin [K.I. Amin, Jump diffusion option valuation in discrete time, J. Finance 48 (1993) 1833-1863] to jump-diffusion models, is one of the most popular approaches to pricing options. In this paper, we present a binomial tree method for Asian options in jump-diffusion models and show its equivalence to certain explicit difference scheme. Employing numerical analysis and the notion of viscosity solution, we prove the uniform convergence of the binomial tree method for European-style and American-style Asian options.     

服务水平约束下动态定价与库存管理

本文研究服务水平约束下的动态定价与库存管理问题。企业在有限期内销售某种产品,产品的需求为随机需求,且期望需求依赖于产品价格。在每一期期初,企业需要在满足服务水平约束的条件下同时决定订货量和产品价格。本文首先构建了动态定价和订购联合决策的随机动态规划模型,并证明了最优解的存在性。进一步,通过对最优解的结构进行刻画,将原问题的求解转化为若干子问题的求解,降低了问题求解的难度。通过对最优解的分析发现,当期初库存增大时,产品最优价格降低。通过分析目标服务水平对利润的影响,证明了服务水平与利润之间存在权衡,实现高的服务水平需要承受利润损失。数值模拟表明,相对于传统的静态定价策略,采用动态定价策略可以降低追求服务水平所带来的利润损失,验证了动态定价策略的有效性。     

Numerical Solutions for Option Pricing Models Including Transaction Costs and Stochastic Volatility

The option pricing problem when the asset is driven by a stochastic volatility process and in the presence of transaction costs leads to solving a nonlinear partial differential equation. The nonlinear term in the PDE reflects the presence of transaction costs. Under a particular market completion assumption we derive the nonlinear PDE whose solution may be used to find the price of options. In this paper under suitable conditions, we give an algorithmic scheme to obtain the solution of the problem by an iterative method and provide numerical solutions using the finite difference method.     

On a multiple credit rating migration model with stochastic interest rate

In this paper, we explore a pricing model for corporate bond accompanied with multiple credit rating migration risk and stochastic interest rate. The bond price volatility strongly depends on potentially multiple credit rating migration and stochastic change of interest rate. A free boundary problem of partial differential equation is presented, which is the equivalent transformation of the pricing model. The existence, uniqueness, and regularity for the free boundary problem are established to guarantee the rationality of the pricing model. Due to the stochastic change of interest rate, the discontinuous coefficient in the free boundary problem depends explicitly on the time variable but is convergent as time tends to infinity. Accordingly, an auxiliary free boundary problem is constructed, whose coefficient is the convergent limit of the coefficient in the original free boundary problem. With some constraint on the risk discount rate satisfied, we prove that a unique traveling wave exists in the auxiliary free boundary problem. The inductive method is adopted to fit the multiplicity of credit rating. Then we show that the solution of the original free boundary problem converges to the traveling wave in the auxiliary free boundary problem. Returning to the pricing model with multiple credit rating migration and stochastic interest rate, we conclude that the bond price profile can be captured by a traveling wave pattern coupling with a guaranteed bond price with face value equal to one at the maturity.     

Valuing the Guaranteed Minimum Death Benefit Clause with Partial Withdrawals

Abstract

In this paper, we give a method for computing the fair insurance fee associated with the guaranteed minimum death benefit (GMDB) clause included in many variable annuity contracts. We allow for partial withdrawals, a common feature in most GMDB contracts, and determine how this affects the GMDB fair insurance charge. Our method models the GMDB pricing problem as an impulse control problem. The resulting quasi-variational inequality is solved numerically using a fully implicit penalty method. The numerical results are obtained under both constant volatility and regime-switching models. A complete analysis of the numerical procedure is included. We show that the discrete equations are stable, monotone and consistent and hence obtain convergence to the unique, continuous viscosity solution, assuming this exists. Our results show that the addition of the partial withdrawal feature significantly increases the fair insurance charge for GMDB contracts.     

债券定价及利率风险的市场价格的重构方法

假设利率变化的模型是由随机微分方程给出,则可以用推导Black-Scholes方程的方法来推出债券价格满足的偏微分方程,得到一个抛物型的偏微分方程.但是,在债券定价的方程中隐含有一个参数λ称为利率风险的市场价格.所谓债券定价的反问题,就是由不同到期时间的债券的现在价格来得到利率风险的市场价格.对随机利率模型下债券定价的正问题先给予介绍和差分数值求解方法,并介绍了反问题,且对反问题给出了数值方法.     

外汇期权的多维跳-扩散模型

本文建立了外汇期权的多维跳-扩散模型,在此模型下将外汇欧式未定权益的定价问题归结为一类倒向随机微分方程的求解问题,证明了这类倒向随机微分方程适应解的存在唯一性问题,并给出了一个关于外汇欧式未定权益的定价公式.     

Strategic Manipulation Approach for Solving Negotiated Transfer Pricing Problem

This paper suggests an approach for solving the transfer pricing problem, where negotiation between divisions is carried out considering the manipulation game theory model for a multidivisional firm. The manipulation equilibrium point is conceptualized under the Machiavellian social theory, represented by three concepts: views, tactics and immorality. In this approach, we are considering a non-cooperative model for the transfer pricing problem: a game model involving manipulating and manipulated players engaged cooperatively in a Nash game, restricted by a Stackelberg game. The cooperation is represented by the Nash bargaining solution. The transfer pricing problem is conceptualized as a strong Stackelberg game involving manipulating and manipulated divisions. This structure established conditions of unequal relative power among divisions, where high-power divisions tend to be abusive and less powerful divisions have a tendency to behave compliantly. For computation purposes, we transform the Stackelberg game model into a Nash game, where every division is able of manipulative behavior to some degree: the Nash game relaxes the interpretation of the manipulation game and the equilibrium selection for the transfer pricing problem. The manipulation dynamics and rationality proposed for the transfer pricing problem correspond to many real-world negotiation situations. We present an example, that illustrates how manipulation can be employed to solve the transfer pricing problem in a multidivisional firm.     

Symmetry helps: Bounded bi-directional dynamic programming for the elementary shortest path problem with resource constraints

When vehicle routing problems with additional constraints, such as capacity or time windows, are solved via column generation and branch-and-price, it is common that the pricing subproblem requires the computation of a minimum cost constrained path on a graph with costs on the arcs and prizes on the vertices. A common solution technique for this problem is dynamic programming. In this paper we illustrate how the basic dynamic programming algorithm can be improved by bounded bi-directional search and we experimentally evaluate the effectiveness of the enhancement proposed. We consider as benchmark problems the elementary shortest path problems arising as pricing subproblems in branch-and-price algorithms for the capacitated vehicle routing problem, the vehicle routing problem with distribution and collection and the capacitated vehicle routing problem with time windows.     

Global well-posedness and large-time behavior of 1D compressible Navier-Stokes equations with density-depending viscosity and vacuum in unbounded domains

We consider the Cauchy problem for one-dimensional(1D) barotropic compressible Navier-Stokes equations with density-depending viscosity and large external forces. Under a general assumption on the densitydepending viscosity, we prove that the Cauchy problem admits a unique global strong(classical) solution for the large initial data with vacuum. Moreover, the density is proved to be bounded from above time-independently.As a consequence, we obtain the large time behavior of the solution without external forces.