Showing 1 - 10 of 14
This paper develops a fully-fledged statistical arbitrage strategy based on a mean-reverting jump-diffusion model and applies it to high-frequency data of the S&P 500 constituents from January 1998-December 2015. In particular, the established stock selection and trading framework identifies...
Persistent link: https://www.econbiz.de/10012611147
This paper proposes a new method for pricing American options that uses importance sampling to reduce estimator bias and variance in simulation-and-regression based methods. Our suggested method uses regressions under the importance measure directly, instead of under the nominal measure as is...
Persistent link: https://www.econbiz.de/10013201024
This paper proposes an innovative algorithm that significantly improves on the approximation of the optimal early exercise boundary obtained with simulation based methods for American option pricing. The method works by exploiting and leveraging the information in multiple cross-sectional...
Persistent link: https://www.econbiz.de/10012611193
As the American early exercise results in a free boundary problem, in this article we add a penalty term to obtain a partial differential equation, and we also focus on an improved definition of the penalty term for American options. We replace the constant penalty parameter with a...
Persistent link: https://www.econbiz.de/10012611353
We present the Generalized Gamma (GG) distribution as a possible risk neutral distribution (RND) for modeling European options prices under Heston's stochastic volatility (SV) model. We demonstrate that under a particular reparametrization, this distribution, which is a member of the...
Persistent link: https://www.econbiz.de/10014332439
Our goal is to analyze the system of Hamilton-Jacobi-Bellman equations arising in derivative securities pricing models. The European style of an option price is constructed as a difference of the certainty equivalents to the value functions solving the system of HJB equations. We introduce the...
Persistent link: https://www.econbiz.de/10013201083
Prior research uses the basic one-period European call-option pricing model to compute default measures for individual firms and concludes that both the size and book-to-market effects are related to default risk. For example, small firms earn higher return than big firms only if they have...
Persistent link: https://www.econbiz.de/10012611103
This paper proposes and investigates a multivariate 4/2 Factor Model. The name 4/2 comes from the superposition of a CIR term and a 3/2-model component. Our model goes multidimensional along the lines of a principal component and factor covariance decomposition. We find conditions for...
Persistent link: https://www.econbiz.de/10012611224
We address a number of technical problems with the popular Practitioner Black-Scholes (PBS) method for valuing options. The method amounts to a two-stage procedure in which fitted values of implied volatilities (IV) from a linear regression are plugged into the Black-Scholes formula to obtain...
Persistent link: https://www.econbiz.de/10012611226
Persistent link: https://www.econbiz.de/10012611687