Title: Black-Scholes Models of Option Pricing Author: Martin Cekal Department: Department of Probability and Mathematical Statistics Supervisor: prof. RNDr. Bohdan Maslowski, DrSc., Charles University in Prague, Faculty of Mathematics and Physics, Department of Probability and Mathematical Statistics. Abstract: In the present master thesis we study a generalization of Black-Scholes model using fractional Brownian motion and jump processes. The main goal is a derivation of the price of call option in a fractional jump market model. The first chapter introduces long memory and its modelling by discrete and continuous time models. In the second chapter fractional Brownian motion is defined, appropriate stochastic analysis is developed and we generalize the notion of Lévy and jump processes. The third chapter introduces fractional Black-Scholes model. In the fourth chapter, tools developed in the second chapter are used for the construction of jump fractional Black-Scholes model and derivation of explicit formula for the price of european call option. In the fifth chapter, we analyze long memory contained in simulated and empirical time series. Keywords: Black-Scholes model, fractional Brownian motion, fractional jump process, long- memory, options pricing.

Cette thèse comporte deux chapitres principaux. Deux problèmes indépendants de Modélisation Mathématique y sont étudiés. Au chapitre 1, on étudiera le problème de l’existence et de l’unicité des distributions quasi-stationnaires (DQS) pour un mouvement Brownien avec dérive, tué en zéro dans le cas où la frontière d’entrée est l’infini et la frontière de sortie est zéro selon la classification de Feller.Ce travail est lié à l’article pionnier dans ce sujet  par Cattiaux, Collet, Lambert, Martínez, Méléard, San Martín; où certaines conditions suffisantes ont été établies pour prouver l’existence et l’unicité de DQS dans le contexte d’une famille de Modèles de Dynamique des Populations.Dans ce chapitre, nous généralisons les théorèmes les plus importants de ce travail pionnier, la partie technique est basée dans la théorie de Sturm-Liouville sur la demi-droite positive. Au chapitre 2, on étudiera le problème d’obtenir des bornes inférieures optimales sur l’Hamiltonien du Modèle d’Ising avec interactions à longue portée, l’interaction entre deux spins situés à distance d décroissant comme d^(2-a), où a ϵ[0,1).Ce travail est lié à l’article publié en 2005 par Cassandro, Ferrari, Merola, Presutti où les bornes inférieures optimales sont obtenues dans le cas où a est dans [0,(log3/log2)-1) en termes de structures hiérarchiques appelées triangles et contours.Les principaux théorèmes obtenus dans cette thèse peuvent être résumés de la façon suivante:1. Il n’existe pas de borne inférieure optimale pour l’Hamiltonien en termes de triangles pour a dans ϵ[log2/log3,1). 2. Il existe une borne optimale pour l’Hamiltonien en termes de contours pour a dans a ϵ [0,1). / This thesis contains two main Chapters, where we study two independent problems of Mathematical Modelling : In Chapter 1, we study the existence and uniqueness of Quasi Stationary Distributions (QSD) for a drifted Browian Motion killed at zero, when $+infty$ is an entrance Boundary and zero is an exit Boundary according to Feller's classification. The work is related to the previous paper published in 2009 by { Cattiaux, P., Collet, P., Lambert, A., Martínez, S., Méléard, S., San Martín, where some sufficient conditions were provided to prove the existence and uniqueness of QSD in the context of a family of Population Dynamic Models. This work generalizes the most important theorems of this work, since no extra conditions are imposed to get the existence, uniqueness of QSD and the existence of a Yaglom limit. The technical part is based on the Sturm Liouville theory on the half line. In Chapter 2, we study the problem of getting quasi additive bounds on the Hamiltonian for the Long Range Ising Model when the interaction term decays according to d^{2-a}, a ϵ[0,1). This work is based on the previous paper written by Cassandro, Ferrari, Merola, Presutti, where quasi-additive bounds for the Hamiltonian were obtained for a in [0,(log3/log2)-1) in terms of hierarchical structures called triangles and Contours. The main theorems of this work can be summarized as follows: 1 There does not exist a quasi additive bound for the Hamiltonian in terms of triangles when a ϵ [0,(log3/log2)-1), 2. There exists a quasi additive bound for the Hamiltonian in terms of Contours for a in [0,1).

[pt] A escolha de uma carreira é uma das decisões mais importantes na vida de uma pessoa, e é feita em um ambiente repleto de incertezas em relação ao futuro. Este trabalho analisa o aspecto financeiro da escolha entre uma carreira numa empresa privada e uma carreira em um órgão público, com ingresso por meio de um concurso. A análise pelo tradicional fluxo de caixa descontado apresenta uma série de limitações por não captar aspectos como a incerteza e a flexibilidade da tomada de decisão. Assim é aplicada uma abordagem segundo a teoria das Opções Reais, que se mostra mais adequada a este caso, pois permite que a flexibilidade de escolha seja modelada e considerada na escolha de carreira de um indivíduo. Neste estudo, os ganhos em uma empresa privada são modelados por meio de um processo estocástico enquanto a carreira pública tem um valor determinístico. Existe flexibilidade de data em relação ao ingresso na carreira pública, porém esta decisão é irreversível. Os resultados sugerem que a opção de ingressar na carreira pública pode ter valor significativo em relação à carreira privada. / [en] Choosing a career is one of the most important decisions in a person s life, and is done in an environment full of uncertainties about the future. This study analyzes the financial aspect of a career choice between a private company and a career in the government, with admission through a contest. The analysis through the traditional discounted cash flow would bring a lot of limitations, not capturing aspects such as uncertainty and flexibility of decision making. So real options theory approach is applied, which appears more appropriate in this case because it allows the flexibility of choice to be modeled and considered in the choice of an individual s career. In this study earnings in a private company are modeled through a stochastic process while public career has a deterministic value. There is flexibility regarding the date of entry into public career, but this decision is irreversible. The results suggest that the option of joining the public career may have significant value in relation to private career.

Une interface est une zone de l'espace qui sépare deux régions possédant des propriétés physiques différentes. La plupart des interfaces de la nature résultent d'un processus de croissance, mêlant une composante aléatoire et une dynamique déterministe régie par les symétries du problème. Le résultat du processus de croissance est un objet présentant des corrélations à longue portée. Dans cette thèse, nous nous proposons d'étudier la statistique d'extrême de différents types d'interfaces. Une première motivation est de raffiner la compréhension géométrique de tels objets, via leur maximum. Une seconde motivation s'inscrit dans la démarche plus générale de la statistique d'extrême de variables aléatoires fortement corrélées. A l'aide de méthodes analytiques d'intégrales de chemin nous analysons la distribution du maximum d'interfaces à l'équilibre, dont l'énergie es t purement élastique à courte portée. Nous attaquons ensuite le problème d'interfaces élastiques en milieu désordonné, principalement à l'aide de simulations numériques. Enfin nous étudierons une interface hors-équilibre dans son régime de croissance. L'équivalence de ce type d'interface avec le polymère dirigé en milieu aléatoire, un des paradigmes de la physique statistique des systèmes désordonnés, donne une portée étendue aux résultats concernant la statistique du maximum de l'interface. Nous exposerons les résultats que nous avons obtenus sur un modèle de mouvements browniens qui ne se croisent pas, tout en explicitant le lien entre ce modèle, l'interface en croissance et le polymère dirigé. / An interface is an area of space that separates two regions having different physical properties. Most interfaces in nature are the result of a growth process, mixing a random behavior and a deterministic dynamic derived from the symmetries of the problem. This growth process gives an object with extended correlations. In this thesis, we focus on the study of the extremum of different kinds of interfaces. A first motivation is to refine the geometric properties of such objects, looking at their maximum. A second motivation is to explore the extreme value statistics of strongly correlated random variables. Using path integral techniques we analyse the probability distribution of the maximum of equilibrium interfaces, possessing short range elastic energy. We then extend this to elastic interfaces in random media, with essentially numerical simulations. Finally we study a particular type of out-of-equilibrium interface, in its growing regime. Such interface is equivalent to the directed polymer in random media, a paradigm of the statistical mechanics of disordered systems. This equivalence reinforces the interest in the extreme value statistics of the interface. We will show the exact results we obtained for a non-intersecting Brownian motion model, explaining precisely the link with the growing interface and the directed polymer.

[pt] O objetivos desta dissertação é fazer uma análise de investimentos usando a teoria das Opções Reais de uma planta GTL. Está análise é a mais indicada, pois se verificam várias flexibilidades nesta planta em relação aos inputs (pode ser usado mais de um produto como matéria- prima) e em relação aos outputs (existem várias combinações possíveis de produção). Torna-se de grande importância neste caso saber calcular o valor destas opções e verificar se vale a pena ou não a construção de uma planta que possa usar como matéria prima mais de um produto e/ou que possa produzir mais de uma possível combinação de produção. A construção de uma planta que possua a possibilidade de trocar de insumo e/ou trocar a combinação de produção só será viável caso o valor criado pela flexibilidade seja maior do que o custo necessário para implementá-la (investimento adicional e custos operacionais extras). Sendo assim, o objetivo desta dissertação é calcular até quanto a Petrobras estaria disposta a pagar para ter uma planta que possua a opção de swicth use dos inputs e/ou outputs, o valor que ela teria que investir para usufruir desta flexibilidade, e através da diferença entre estes valores verificar se vale a pena ou não a construção da planta com flexibilidade de input e/ou output. / [en] The objective of this dissertation is to do a analysis of investiment using the real option theory for the plant GTL. This analysis is the best because there are many flexibilities in this plant in relation the inputs (the plant can operate with several inputs) and in relation the outputs (there are many possible combination of production). In this case is very important to know how to calculate the value of these options and to verify if it is worthwhile or not the construction of a plant that could use two inputs and/or is able to procuce several possible combinations of production. The construction of the plant that change the input abd /or can changer the production combination is viable if the value created by flexibility is large than the necessary cost to implement its (additional investiment and extra operational costs). So, the objective of this dissertation is to calculate until hen Petrobras would be avaible to pay in order to have a plant that has the option of swicth use of inputs and/or outputs, the value it would have to invest to use this flexibility, and through the difference between these values verify if is worthwhile or not the construction of the plant with the flexibility of input and/or output.

Nous considérons le cas d’un assureur qui doit indemniser une banque à la suite de pertes liées à un défaut de remboursement de ses emprunteurs. Les modèles couramment utilisés sont collectifs et ne permettent pas de prendre en compte les comportements individuels des emprunteurs. Dans une première partie nous définissons un modèle pour étudier le montant des pertes liées à ces défauts de paiement (provision) pour une période donnée. La quantité clé de notre modèle est le montant d’un défaut. Pour un emprunteur j et une date de fin de prêt Tj , ce montant vaut max(Sj Tj -Rj Tj ; 0), où Sj Tj est le montant dû par l’emprunteur et dépend de la durée et du montant du prêt, et Rj Tj est le montant de la revente du bien immobilier financé par le prêt. Rj Tj est proportionnel au montant emprunté; le coefficient de proportionnalité est modélisé par un mouvement Brownien géométrique et représente les fluctuations des prix de l’immobilier. La loi des couples (Date de fin du prêt, Durée du prêt) est modélisée par un processus ponctuel de Poisson. La provision Ph, où h est la durée maximale des contrats considérés, est alors définie comme la somme d’un nombre aléatoire de montants de défauts individuels. Nous pouvons ainsi calculer l’espérance et la variance de la provision mais aussi donner un algorithme de simulation. Il est également possible d’estimer les paramètres liés au modèle et de fournir une valeur numérique aux quantiles de la provision. Dans une deuxième partie nous nous intéresserons au besoin de solvabilité associé au risque de provisionnement (problématique imposée par la réforme européenne Solvabilité 2). La question se ramène à étudier le comportement asymptotique de Ph lorsque h ! +1. Nous montrons que Ph, convenablement normalisée, converge en loi vers une variable aléatoire qui est la somme de deux variables dont l’une est gaussienne / We consider an insurance company which has to indemnify a bank against losses related to a borrower defaulting on payments. Models normally used by insurers are collectives and do not allows to take into account the personal characteristics of borrowers. In a first part, we defined a model to evaluate potential future default amounts (provision) over a fixed period.The amount of default is the key to our model. For a borrower j and an associated maturity Tj, this amount is max(Sj Tj -Rj Tj ; 0), where Sj Tj is the outstanding amount owed by the borrower and depends on the borrowed amount and the term of the loan, and Rj Tj is the property sale amount. Rj Tj is proportionate to the borrowed amount; the proportionality coefficient is modeled by a geometric Brownian motion and represents the fluctuation price of real estate. The couples (Maturity of the loan, Term of the loan) are modeled by a Poisson point process. The provision Ph, where h is the maximum duration of the loans, is defined as the sum of the random number of individual defaults amounts. We can calculate the mean and the variance of the provision and also give an algorithm to simulate the provision. It is also possible to estimate the parameters of our model and then give a numerical value of the provision quantile. In the second part we will focus on the solvency need due to provisioning risk (topic imposed by the european Solvency 2 reform). The question will be to study the asymptotic behaviour of Ph when h ! +1. We will show that Ph, well renormalized, converges in law to a random variable which is the sum of two random variables whose one is a Gaussian

In dieser Arbeit untersuchen wir die Struktur von Gausschen Prozessen, die durch gewisse lineare Transformationen von zwei Gausschen Martingalen erzeugt werden. Die Klasse dieser Transformationen ist durch nanzmathematische Gleichgewichtsmodelle mit heterogener Information motiviert. In Kapital 2 bestimmen wir für solche Prozesse, die zunächst in einer erweiterten Filtrierung konstruiert werden, die kanonische Zerlegung als Semimartin-gale in ihrer eigenen Filtrierung. Die resultierende Drift wird durch Volterra-Kerne beschrieben. Insbesondere charakterisieren wir diejenigen Prozesse, die in ihrer eigenen Filtrierung eine Brownsche Bewegung bilden. In Kapital 3 konstruieren wir neue orthogonale Zerlegungen der Brownschen Filtrierungen. In den Kapitaln 4 bis 6 wenden wir unsere Resultate zur Charakterisierung Brownscher Bewegungen im Kontext nanzmathematischer Modelle an, in denen es Marktteilnehmer mit zusätzlicher Insider-Information gibt. Wir untersuchen Erweiterungen eines Gleichgewichtsmodells von Kyle [42] und Back [7], in denen die Insider-Information in verschiedener Weise durch Gaussche Martingale spezifiziert wird. Insbesondere klären wir die Struktur von Insider-Strategien, die insofern unaufallig bleiben, als sich die resultierende Gesamtnachfrage wie eine Brownsche Bewegung verhält. / In this thesis, we study Gaussian processes generated by certain linear transformations of two Gaussian martingales. This class of transformations is motivated by nancial equilibrium models with heterogeneous information. In Chapter 2 we derive the canonical decomposition of such processes, which are constructed in an enlarged ltration, as semimartingales in their own ltration. The resulting drift is described in terms of Volterra kernels. In particular we characterize those processes which are Brownian motions in their own ltration. In Chapter 3 we construct new orthogonal decompositions of Brownian ltrations. In Chapters 4 to 6 we are concerned with applications of our characterization results in the context of mathematical models of insider trading. We analyze extensions of the nancial equilibrium model of Kyle [42] and Back [7] where the Gaussian martingale describing the insider information is specified in various ways. In particular we discuss the structure of insider strategies which remain inconspicuous in the sense that the resulting cumulative demand is again a Brownian motion.

O aumento pelo interesse na teoria de integração estocástica é, basicamente, consequência da acirrada competição para entender, desenvolver e aplicar a matemática subjacente ao mercado mobiliário. Neste trabalho desenvolvemos, de maneira didática e visando aplicações, tal teoria. Para tanto, começamos apresentando um desenvolvimento cuidadoso da teoria dos martingais e dos principais resultados de medida e probabilidade relacionados. Depois apresentamos de maneira formal a teoria de integração estocástica com respeito aos semi-martingais contínuos. Finalizamos com um tratamento das principais aplicações dessa teoria como a fórmula de Itô, uma introdução às equações diferenciais estocásticas e a fórmula de Feynman-Kac. Apresentamos também, em um apêndice, a teoria de mudança de medida e o teorema de Girsanov. Tentamos durante o trabalho apresentar exemplos relacionados com finanças e ilustrar a importância do movimento Browniano. / The increasing interest in the theory of Stochastic Integration is due mainly to the competitive pressure to understand, develop and apply the underlying mathematics of security markets. In this work, we attempt to develop part of the theory in a didactical approach and focused toward some particular applications. For this purpose, we begin by introducing a thorough development of Martingale theory and the main related results on Measure and Probability theory. We then present in a formal way the Stochastic Integration Theory with respect to continuous Semimartingales. Subsequentially, we show some of the theory\'s main applications, such as Itô\'s formula, an introduction to the theory of Stochastic Differential Equations and Feynman-Kac\'s formula. We also present in the appendix Girsanov\'s theorem and a construction of Brownian motion. During the development of this text we endeavored to enrich it by including examples relevant to finance and emphasizing the importance of the ubiquitous Brownian motion.

O objetivo do presente trabalho foi propor métodos de processamento de sinais e reconhecimento de padrões dos sinais de respostas de sensores de gás, utilizando técnicas e modelos da geometria fractal. Foram analisados e estudados os sinais de resposta de dois tipos de sensores. O primeiro sensor foi um dispositivo de óxido de estanho, cujo princípio de funcionamento baseia-se na mudança da resistividade do filme. Este forneceu sinais de respostas com características ruidosas como resposta à interação com as moléculas de gás. O segundo sensor foi um dispositivo Metal-Óxido-Semicondutor (MOS) com princípio de funcionamento baseado na geração de foto corrente, fornecendo respostas imagens bidimensionais. Para as análises dos sinais ruidosos do sensor de óxido de estanho, foi proposto um método de processamento baseado no modelo do movimento Browniano fracionário. Com este método foi possível a discriminação de gases combustíveis com uma taxa de acerto igual a 100%. Para as análises das respostas do tipo imagem do sensor MOS, foram propostos dois diferentes métodos. O primeiro foi embasado no princípio de compressão fractal de imagens e o segundo método proposto, foi baseado na análise e determinação da dimensão fractal multiescala. Ambos os métodos propostos mostram-se eficazes para a determinação da assinatura, como o reconhecimento, de todos os gases que foram utilizados nos experimentos. Os resultados obtidos no presente trabalho abrem novas fronteiras e perspectivas nos paradigmas de processamento de sinais e reconhecimento de padrões, quando utilizada a teoria da geometria fractal. / The aim of the present work was to propose methods for signal possessing and pattern, recognition from the signals response of gas sensors using models and techniques from the fractal geometry. The data studied and analyzed were obtained from two kinds of sensors. The first sensor was the tin oxide device, which detection principle is based on the resistivity changes of the tin oxide film and it provides noisy signals as response to the gas interaction. The second sensor was a metal-oxide-semiconductor (MOS) device, which has as the working principle the photocurrent generation. This sensor provides two-dimensional images signals. A method using a fractional Brownian motion was proposed to analyze the noise signal from the tin oxide device. The fuel gases discrimination employing this model was 100% successful. Two different methods were proposed to analyze the signal response from the MOS device. The first method was based on the fractal image compression technique and the second one was based on the analysis and determination of the multiscale fractal dimension. Both proposed methods have shown to be efficient tools for signature determination as the pattern recognition of all gases that were used in the experiment. The results obtained in the present work open new frontiers and perspectives inside the paradigms of the signal processing and pattern recognition by using the fractal theory.

O aumento pelo interesse na teoria de integração estocástica é, basicamente, consequência da acirrada competição para entender, desenvolver e aplicar a matemática subjacente ao mercado mobiliário. Neste trabalho desenvolvemos, de maneira didática e visando aplicações, tal teoria. Para tanto, começamos apresentando um desenvolvimento cuidadoso da teoria dos martingais e dos principais resultados de medida e probabilidade relacionados. Depois apresentamos de maneira formal a teoria de integração estocástica com respeito aos semi-martingais contínuos. Finalizamos com um tratamento das principais aplicações dessa teoria como a fórmula de Itô, uma introdução às equações diferenciais estocásticas e a fórmula de Feynman-Kac. Apresentamos também, em um apêndice, a teoria de mudança de medida e o teorema de Girsanov. Tentamos durante o trabalho apresentar exemplos relacionados com finanças e ilustrar a importância do movimento Browniano. / The increasing interest in the theory of Stochastic Integration is due mainly to the competitive pressure to understand, develop and apply the underlying mathematics of security markets. In this work, we attempt to develop part of the theory in a didactical approach and focused toward some particular applications. For this purpose, we begin by introducing a thorough development of Martingale theory and the main related results on Measure and Probability theory. We then present in a formal way the Stochastic Integration Theory with respect to continuous Semimartingales. Subsequentially, we show some of the theory\'s main applications, such as Itô\'s formula, an introduction to the theory of Stochastic Differential Equations and Feynman-Kac\'s formula. We also present in the appendix Girsanov\'s theorem and a construction of Brownian motion. During the development of this text we endeavored to enrich it by including examples relevant to finance and emphasizing the importance of the ubiquitous Brownian motion.