3,975 research outputs found
B-spline techniques for volatility modeling
This paper is devoted to the application of B-splines to volatility modeling,
specifically the calibration of the leverage function in stochastic local
volatility models and the parameterization of an arbitrage-free implied
volatility surface calibrated to sparse option data. We use an extension of
classical B-splines obtained by including basis functions with infinite
support. We first come back to the application of shape-constrained B-splines
to the estimation of conditional expectations, not merely from a scatter plot
but also from the given marginal distributions. An application is the Monte
Carlo calibration of stochastic local volatility models by Markov projection.
Then we present a new technique for the calibration of an implied volatility
surface to sparse option data. We use a B-spline parameterization of the
Radon-Nikodym derivative of the underlying's risk-neutral probability density
with respect to a roughly calibrated base model. We show that this method
provides smooth arbitrage-free implied volatility surfaces. Finally, we sketch
a Galerkin method with B-spline finite elements to the solution of the partial
differential equation satisfied by the Radon-Nikodym derivative.Comment: 25 page
A Radon-Nikodym derivative for almost subadditive set functions
In classical measure theory, the Radon-Nikodym theorem states in a concise condition, namely domination, how a measure can be factorized by another (bounded) measure through a density function. Several approaches have been undertaken to see under which conditions an exact factorization can be obtained with set functions that are not Ï-additive (for instance finitely additive set functions or submeasures). We provide a Radon-Nikodym type theorem with respect to a measure for almost subadditive set functions of bounded sum. The necessary and sufficient condition to guarantee a one-sided Radon-Nikodym derivative remains the standard domination condition for measures.
Option Valuation with Conditional Heteroskedasticity and Non-Normality
We provide results for the valuation of European style contingent claims for a large class of specifications of the underlying asset returns. Our valuation results obtain in a discrete time, infinite state-space setup using the no-arbitrage principle and an equivalent martingale measure. Our approach allows for general forms of heteroskedasticity in returns, and valuation results for homoskedastic processes can be obtained as a special case. It also allows for conditional non-normal return innovations, which is critically important because heteroskedasticity alone does not suffice to capture the option smirk. We analyze a class of equivalent martingale measures for which the resulting risk-neutral return dynamics are from the same family of distributions as the physical return dynamics. In this case, our framework nests the valuation results obtained by Duan (1995) and Heston and Nandi (2000) by allowing for a time-varying price of risk and non-normal innovations. We provide extensions of these results to more general equivalent martingale measures and to discrete time stochastic volatility models, and we analyze the relation between our results and those obtained for continuous time models. Nous prĂ©sentons les rĂ©sultats dâune Ă©tude portant sur lâĂ©valuation de crĂ©ances Ă©ventuelles de style europĂ©en pour une grande variĂ©tĂ© de caractĂ©ristiques liĂ©es au rendement des actifs sous-jacents. Les rĂ©sultats de notre Ă©valuation proposent en temps discret une formule Ă©tat-espace infinie, Ă partir du principe de non-arbitrage et dâune mesure de martingale Ă©quivalente. Notre approche permet de tenir compte de formes gĂ©nĂ©rales dâhĂ©tĂ©roscĂ©dasticitĂ© dans les rendements et dâobtenir, dans des cas spĂ©ciaux, des rĂ©sultats dâĂ©valuation liĂ©s aux processus homoscĂ©dastiques. Elle permet aussi de considĂ©rer les innovations conditionnellement non normales en matiĂšre de rendement, ce qui reprĂ©sente un facteur critique, compte tenu du fait que lâhĂ©tĂ©roscĂ©dasticitĂ© ne permet pas, Ă elle seule, de saisir pleinement le caractĂšre ironique de lâoption. Nous analysons une catĂ©gorie de mesures de martingale Ă©quivalentes dont la dynamique du rendement risque-neutre obtenu est de la mĂȘme famille de distribution que la dynamique du rendement physique. Dans ce cas, notre cadre dâĂ©tude soutient les rĂ©sultats dâĂ©valuation obtenus par Duan (1995) et par Heston et Nandi (2000) et tient compte du coĂ»t du risque variant dans le temps et des innovations non normales. Nous Ă©tendons ces rĂ©sultats aux mesures de martingale Ă©quivalentes plus gĂ©nĂ©rales et aux modĂšles de volatilitĂ© stochastique en temps discret et analysons aussi la relation entre nos rĂ©sultats et ceux obtenus dans le cas des modĂšles en temps continu.GARCH, risk-neutral valuation, no-arbitrage, non-normal innovations, GARCH (hĂ©tĂ©roscĂ©dasticitĂ© conditionnelle autorĂ©gressive gĂ©nĂ©ralisĂ©e), Ă©valuation du risque neutre, absence dâarbitrage, innovations non normales
Hilbert C*-modules and amenable actions
We study actions of discrete groups on Hilbert -modules induced from
topological actions on compact Hausdorff spaces. We show non-amenability of
actions of non-amenable and non-a-T-menable groups, provided there exists a
quasi-invariant probability measure which is sufficiently close to being
invariant.Comment: Final version, to appear in Studia Mathematic
On the use of reproducing kernel Hilbert spaces in functional classification
The H\'ajek-Feldman dichotomy establishes that two Gaussian measures are
either mutually absolutely continuous with respect to each other (and hence
there is a Radon-Nikodym density for each measure with respect to the other
one) or mutually singular. Unlike the case of finite dimensional Gaussian
measures, there are non-trivial examples of both situations when dealing with
Gaussian stochastic processes. This paper provides:
(a) Explicit expressions for the optimal (Bayes) rule and the minimal
classification error probability in several relevant problems of supervised
binary classification of mutually absolutely continuous Gaussian processes. The
approach relies on some classical results in the theory of Reproducing Kernel
Hilbert Spaces (RKHS).
(b) An interpretation, in terms of mutual singularity, for the "near perfect
classification" phenomenon described by Delaigle and Hall (2012). We show that
the asymptotically optimal rule proposed by these authors can be identified
with the sequence of optimal rules for an approximating sequence of
classification problems in the absolutely continuous case.
(c) A new model-based method for variable selection in binary classification
problems, which arises in a very natural way from the explicit knowledge of the
RN-derivatives and the underlying RKHS structure. Different classifiers might
be used from the selected variables. In particular, the classical, linear
finite-dimensional Fisher rule turns out to be consistent under some standard
conditions on the underlying functional model
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