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A recursive robust Bayesian estimation in partially observed financial market

Jianhui Huang (2007)

Applicationes Mathematicae

I propose a nonlinear Bayesian methodology to estimate the latent states which are partially observed in financial market. The distinguishable character of my methodology is that the recursive Bayesian estimation can be represented by some deterministic partial differential equation (PDE) (or evolution equation in the general case) parameterized by the underlying observation path. Unlike the traditional stochastic filtering equation, this dynamical representation is continuously dependent on the...

A study of the dynamic of influence through differential equations∗

Emmanuel Maruani, Michel Grabisch, Agnieszka Rusinowska (2012)

RAIRO - Operations Research

The paper concerns a model of influence in which agents make their decisions on a certain issue. We assume that each agent is inclined to make a particular decision, but due to a possible influence of the others, his final decision may be different from his initial inclination. Since in reality the influence does not necessarily stop after one step, but may iterate, we present a model which allows us to study the dynamic of influence. An innovative...

A study of the dynamic of influence through differential equations∗

Emmanuel Maruani, Michel Grabisch, Agnieszka Rusinowska (2012)

RAIRO - Operations Research

The paper concerns a model of influence in which agents make their decisions on a certain issue. We assume that each agent is inclined to make a particular decision, but due to a possible influence of the others, his final decision may be different from his initial inclination. Since in reality the influence does not necessarily stop after one step, but may iterate, we present a model which allows us to study the dynamic of influence. An innovative...

Analytical approximation of the transition density in a local volatility model

Stefano Pagliarani, Andrea Pascucci (2012)

Open Mathematics

We present a simplified approach to the analytical approximation of the transition density related to a general local volatility model. The methodology is sufficiently flexible to be extended to time-dependent coefficients, multi-dimensional stochastic volatility models, degenerate parabolic PDEs related to Asian options and also to include jumps.

DG method for numerical pricing of multi-asset Asian options—the case of options with floating strike

Jiří Hozman, Tomáš Tichý (2017)

Applications of Mathematics

Option pricing models are an important part of financial markets worldwide. The PDE formulation of these models leads to analytical solutions only under very strong simplifications. For more general models the option price needs to be evaluated by numerical techniques. First, based on an ideal pure diffusion process for two risky asset prices with an additional path-dependent variable for continuous arithmetic average, we present a general form of PDE for pricing of Asian option contracts on two...

Low Volatility Options and Numerical Diffusion of Finite Difference Schemes

Milev, Mariyan, Tagliani, Aldo (2010)

Serdica Mathematical Journal

2000 Mathematics Subject Classification: 65M06, 65M12.In this paper we explore the numerical diffusion introduced by two nonstandard finite difference schemes applied to the Black-Scholes partial differential equation for pricing discontinuous payoff and low volatility options. Discontinuities in the initial conditions require applying nonstandard non-oscillating finite difference schemes such as the exponentially fitted finite difference schemes suggested by D. Duffy and the Crank-Nicolson variant...

Mean-Field Optimal Control

Massimo Fornasier, Francesco Solombrino (2014)

ESAIM: Control, Optimisation and Calculus of Variations

We introduce the concept of mean-field optimal control which is the rigorous limit process connecting finite dimensional optimal control problems with ODE constraints modeling multi-agent interactions to an infinite dimensional optimal control problem with a constraint given by a PDE of Vlasov-type, governing the dynamics of the probability distribution of interacting agents. While in the classical mean-field theory one studies the behavior of a large number of small individuals freely interacting...

Nash equilibria for a model of traffic flow with several groups of drivers

Alberto Bressan, Ke Han (2012)

ESAIM: Control, Optimisation and Calculus of Variations

Traffic flow is modeled by a conservation law describing the density of cars. It is assumed that each driver chooses his own departure time in order to minimize the sum of a departure and an arrival cost. There are N groups of drivers, The i-th group consists of κi drivers, sharing the same departure and arrival costs ϕi(t),ψi(t). For any given population sizes κ1,...,κn, we prove the existence of a Nash equilibrium solution, where no driver can lower his own total cost by choosing a different departure...

Nonstandard Finite Difference Schemes with Application to Finance: Option Pricing

Milev, Mariyan, Tagliani, Aldo (2010)

Serdica Mathematical Journal

2000 Mathematics Subject Classification: 65M06, 65M12.The paper is devoted to pricing options characterized by discontinuities in the initial conditions of the respective Black-Scholes partial differential equation. Finite difference schemes are examined to highlight how discontinuities can generate numerical drawbacks such as spurious oscillations. We analyze the drawbacks of the Crank-Nicolson scheme that is most frequently used numerical method in Finance because of its second order accuracy....

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