Representations for conditional expectations and applications to pricing and hedging of financial products in Lévy and jump-diffusion setting. Issue 2 (4th March 2019)

• Record Type: Journal Article
• Authors: Daveloose, Catherine; Khedher, Asma; Vanmaele, Michèle
• Is Part Of: Stochastic analysis and applications. Volume 37:Issue 2(2019)
• Page Start: 281
• Page End: 319
• Publication Date: 2019-03-04
• Subjects: Conditional expectation -- Monte Carlo methods -- conditional density method -- Malliavin calculus -- Pricing -- Lévy processes -- American option -- reduction of variance; 65C05 -- 60H07 -- 60H35 -- 60H30; Stochastic analysis -- Periodicals; 519.2205
• DOI: 10.1080/07362994.2018.1561306
• Languages: English
• ISSNs: 0736-2994

Abstract

Abstract: In this article, we derive expressions for conditional expectations in terms of regular expectations without conditioning but involving some weights. For this purpose, we apply two approaches: the conditional density method and the Malliavin method. We use these expressions for the numerical estimation of the price of American options and their deltas in a Lévy and jump-diffusion setting. Several examples of applications to financial and energy markets are given including numerical examples.