We address a method for pricing electricity contracts based on valuation of ability to produce power, which is considered as the true underlying for electricity derivatives. This approach shows that an evaluation of free production capacity provides a framework where a change–of–numeraire transformation converts electricity forward market into the common settings of money market modeling. Using...

in this paper, installment options on the underlying assetwhich evolves according to black-scholes model and pays constant dividendto its owner will be considered. applying arbitrage pricing theory,the non-homogeneous parabolic partial differential equation governingthe value of installment option is derived. then, penalty method is usedto value the european continuous installment call option.

nonstandard finite difference schemes for the black-scholes partial differential equation preserving the positivity property are proposed. computationally simple schemes are derived by using a nonlocal approximation in the reaction term of the black-scholes equation. unlike the standard methods, the solutions of new proposed schemes are positive and free of the spurious oscillations.

A meshfree approximation scheme based on the radial basis function methods is presented for the numerical solution of the options pricing model. This thesis deals with the valuation of the European, Barrier, Asian, American options of a single asset and American options of multi assets. The option prices are modeled by the Black-Scholes equation. The θ-method is used to discretize the equation ...

In this paper we propose a general foreign equity option pricing framework that unifies the vast foreign equity option pricing literature and incorporates the stochastic volatility into foreign equity option pricing. Under our framework, the time-changed Lévy processes are used to model the underlying assets price of foreign equity option and the closed form pricing formula is obtained through ...

Research ...nds that ...rms’ investment decisions are distorted by irreversibility and ...nance constraints. Whereas the existing literature examines the e¤ects of these features separately, this paper studies their interaction. The impact of these constraints on a ...rm’s incentive to invest is characterised using option pricing techniques. Financial constraints reduce the initial capacity, ra...

Modern option pricing techniques are often considered among the most mathematically complex of all applied areas of financial engineering. In particular these techniques derive their impetus from four milestones of option pricing models: Bachelier model, Samuelson model, Black-Scholes-Merton model and Levy model. In this paper we evaluate all related option pricing models based on these milesto...

In the following paper, we provide a review and development of sequential Monte Carlo (SMC) methods ([17, 18, 24]) for option pricing. SMC are a class of Monte Carlo-based algorithms, that are designed to approximate expectations w.r.t a sequence of related probability measures. These approaches have been used, successfully, for a wide class of applications in engineering, statistics and physic...