Numerical Method for Model-free Pricing of Exotic Derivatives in Discrete Time Using Rough Path Signatures

DOI10.1080/1350486X.2020.1726784MaRDI QIDQ5108927zbMATH OpenOpenAlexFDO

Authors

Publication date 6 May 2020

Published in Applied Mathematical Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1905.01720

zbMATH Keywords

financial derivativesmodel-free pricingrough path theory

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20)

Abstract: We estimate prices of exotic options in a discrete-time model-free setting when the trader has access to market prices of a rich enough class of exotic and vanilla options. This is achieved by estimating an unobservable quantity called "implied expected signature" from such market prices, which are used to price other exotic derivatives. The implied expected signature is an object that characterises the market dynamics.

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Cited in

(10)

• Option pricing with polynomial chaos expansion stochastic bridge interpolators and signed path dependence
• Non-parametric pricing and hedging of exotic derivatives
• Short communication: projection of functionals and fast pricing of exotic options
• The signature kernel is the solution of a Goursat PDE
• Double-Execution Strategies Using Path Signatures
• Signature-Based Models: Theory and Calibration
• Feature engineering with regularity structures
• Machine-learning regression methods for American-style path-dependent contracts
• Randomized signature methods in optimal portfolio selection
• Global universal approximation of functional input maps on weighted spaces

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