BAYESIAN INFERENCE, PRIOR INFORMATION ON VOLATILITY, AND OPTION PRICING: A MAXIMUM ENTROPY APPROACH

This paper develops a Bayesian model for pricing derivative securities with prior information on volatility. Prior information is given in terms of expected values of levels and rates of precision: the inverse of variance. We provide several approximate formulas, for valuing European call options, on the basis of asymptotic and polynomial approximations of Bessel functions.

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Year of publication:	2005
Authors:	VENEGAS-MARTÍNEZ, FRANCISCO
Published in:	International Journal of Theoretical and Applied Finance (IJTAF). - World Scientific Publishing Co. Pte. Ltd., ISSN 1793-6322. - Vol. 08.2005, 01, p. 1-12
Publisher:	World Scientific Publishing Co. Pte. Ltd.
Subject:	Bayesian Inference \| option pricing \| stochastic volatility \| numerical methods

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Extent:	application/pdf text/html
Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005050514