Thesis (M.Sc. (Applied Mathematics)) -- University of Limpopo, 2020 / In this study,we consider two problems.The first one is the problem of computing hedging portfolios for options that may have discontinuous payoff functions.For this problem we use the Malliavin property called the Clark-Ocone formula and give some examples for diferent types of pay of functions of the options of European type.The second problem is based on the computation of price sensitivities (derivatives of the probabilistic representation of the pay off functions with respect to the underlying parameters of the model) also known as`Greeks' of discontinuous payoff functions and also give some examples.We restrict ourselves to the computation of Delta, Gamma and Vega.For this problem we make use of the properties of the Malliavin calculus like the integration by parts formula and the chain rule.We find the representations of the price sensitivities in terms of the expected value of the random variables that do not involve the actual direct differentiation of the payout function,that is, E[g(XT ) ] where g is a payoff function which depend on the stochasticdic differential equation XT at maturity time T and is the Malliavin weigh tfunction. In general, we study the regularity of the solutions of the stochastic differentia lequations in the sense of Malliavin calculus and explore its applications to Mathematical finance. / Services SETA and National Research Foundation (NRF)

Thesis (M. Sc.(Mathematics and Applied Mathematics))--University of Pretoria, 2009. / Summary in English. Includes bibliographical references.

published_or_final_version / Mathematics / Doctoral / Doctor of Philosophy

Thesis (MSc)--University of Stellenbosch, 2008. / Bibliography. Also available via the Internet.

This dissertation provides a brief theoretical introduction to the Malliavin calculus leading to a particular application in finance. The Malliavin calculus concepts are used to aid in the simulation of the Greeks for financial contingent claims. Particular focus is placed on creating efficiency in the more exotic type option simulations, where no closed solution pricing formulae exist. Copyright / Dissertation (MSc)--University of Pretoria, 2009. / Mathematics and Applied Mathematics / unrestricted

In this thesis we propose a new approach to solve single-agent investment problems with deterministic coefficients. We consider the classical Merton’s portfolio problem framework, which is well-known in the modern theory of financial economics: an investor must allocate his money between one riskless bond and a number of risky stocks. The investor is assumed to be "small" in the sense that his actions do not affect market prices and the market is complete. The objective of the agent is to maximize expected utility of wealth at the end of the planning horizon. The optimal portfolio should be expressed as a ”feedback” function of the current wealth. Under the so-called complete market assumption, the optimization can be split into two stages: first the optimal terminal wealth for a given initial endowment is determined, and then the strategy is computed that leads to this terminal wealth. It is possible to extend this martingale approach and to obtain explicit solution of Merton’s portfolio problem using the Malliavin calculus and the Clark-Ocone formula.

In this thesis we propose a new approach to solve single-agent investment problems with deterministic coefficients. We consider the classical Merton’s portfolio problem framework, which is well-known in the modern theory of financial economics: an investor must allocate his money between one riskless bond and a number of risky stocks. The investor is assumed to be "small" in the sense that his actions do not affect market prices and the market is complete. The objective of the agent is to maximize expected utility of wealth at the end of the planning horizon. The optimal portfolio should be expressed as a ”feedback” function of the current wealth. Under the so-called complete market assumption, the optimization can be split into two stages: first the optimal terminal wealth for a given initial endowment is determined, and then the strategy is computed that leads to this terminal wealth. It is possible to extend this martingale approach and to obtain explicit solution of Merton’s portfolio problem using the Malliavin calculus and the Clark-Ocone formula.

Sub-Riemannian geometry is the natural setting for studying dynamical systems, as noise often has a lower dimension than the dynamics it enters. This makes sub-Riemannian geometry an important field of study. In this thesis, we analysis some of the aspects of sub-Riemannian diffusion processes on manifolds. We first focus on studying the small-time asymptotics of sub-Riemannian diffusion bridges. After giving an overview of recent work by Bailleul, Mesnager and Norris on small-time fluctuations for the bridge of a sub-Riemannian diffusion, we show, by providing a specific example, that, unlike in the Riemannian case, small-time fluctuations for sub-Riemannian diffusion bridges can exhibit exotic behaviours, that is, qualitatively different behaviours compared to Brownian bridges. We further extend the analysis by Bailleul, Mesnager and Norris of small-time fluctuations for sub-Riemannian diffusion bridges, which assumes the initial and final positions to lie outside the sub-Riemannian cut locus, to the diagonal and describe the asymptotics of sub-Riemannian diffusion loops. We show that, in a suitable chart and after a suitable rescaling, the small-time diffusion loop measures have a non-degenerate limit, which we identify explicitly in terms of a certain local limit operator. Our analysis also allows us to determine the loop asymptotics under the scaling used to obtain a small-time Gaussian limit for the sub-Riemannian diffusion bridge measures by Bailleul, Mesnager and Norris. In general, these asymptotics are now degenerate and need no longer be Gaussian. We close by reporting on work in progress which aims to understand the behaviour of Brownian motion conditioned to have vanishing $N$th truncated signature in the limit as $N$ tends to infinity. So far, it has led to an analytic proof of the stand-alone result that a Brownian bridge in $\mathbb{R}^d$ from $0$ to $0$ in time $1$ is more likely to stay inside a box centred at the origin than any other Brownian bridge in time $1$.

The Malliavin-Thalmaier formula was introduced for simulation of high dimensional probability density functions. But when this integration by parts formula is applied directly in computer simulations, we show that it is unstable. We propose an approximation to the Malliavin-Thalmaier formula. In this paper, we find the order of the bias and the variance of the approximation error. And we obtain an explicit Malliavin-Thalmaier formula for the calculation of Greeks in finance. The weights obtained are free from the curse of dimensionality.

Page iii not included in the thesis and therefore, not included in the page count. / <p> In recent years, some efficient methods have been developed for calculating derivative price sensitivities, or the Greeks, using Monte Carlo simulation. However, the slow convergence, especially for discontinuous payoff functions, is well known for Monte Carlo simulation. In this project, we investigate the Malliavin calculus and its application in computation of the Greeks. Malliavin calculus and Wiener Chaos theory are introduced. The theoretical framework of the Malliavin weighted scheme of computation of the Greeks is explored in details, and the numerical implementation of the one-dimensional case and an example of the two-dimensional case are presented. Finally, the results are compared with those of finite difference scheme.</p> / Thesis / Master of Science (MSc)