Showing 1 - 10 of 14
In empirical modeling, there have been two strands for pricing in the options literature, namely the parametric and nonparametric models. Often, the support for the nonparametric methods is based on a benchmark such as theBlack-Scholes model with constant volatility. In this paper, we examine...
Persistent link: https://www.econbiz.de/10005857988
We introduce a new analytical approach to price American options. Using an explicit and intuitive proxy for the exercise rule, we derive tractable pricing formulas using a short-maturity asymptotic expansion. Depending on model parameters, this method can accurately price options with...
Persistent link: https://www.econbiz.de/10005857779
In this paper we construct arbitrage-free market models of stochastic volatility type for one stock, one bank account and a finite family of European call options with various strikes and maturities. We first introduce local implied volatilities and price level as market observables which...
Persistent link: https://www.econbiz.de/10005857780
This paper investigates the impact of heterogeneous beliefs of professional investors on the currency options market. Using a unique data set with detailed information on the foreign-exchange forecasts of about 50 market participants over more than ten years, we construct an empirical proxy for...
Persistent link: https://www.econbiz.de/10005858023
In the existing literature on barrier options, much effort has been exerted to ensureconvergence through placing the barrier in close proximity to, or directly onto, thenodes of the tree lattice. In this paper we show that this may not be necessary toachieve accurate option price...
Persistent link: https://www.econbiz.de/10005858216
Financial models are largely used in option pricing. These physical models capture several salient features of asset price dynamics. The pricing performance can be significantly enhanced when they are combined with nonparametric learning approaches, that empirically learn and correct pricing...
Persistent link: https://www.econbiz.de/10005858326
Do you enjoy chores such as mowing the lawn or, as it is called in Canada, shovelling the snow? Below we discuss a simpler method of trimming the hedge, suggested by Barone-Adesi, Engle and Mancini. Assuming the option price is homogeneous our calculation is model independent and provides delta...
Persistent link: https://www.econbiz.de/10005858390
We show that a simple equilibrium model with uncertain growth is able to simultaneously generate patterns in implied volatility and risk aversion that are similar to the ones observed in the data. In addition, the model produces an implied pricing kernel that is increasing for particular levels...
Persistent link: https://www.econbiz.de/10005858509
In this article, we describe the various sorts of American Parisian options and propose valuation formulae. Although there is no closed-form valuation for these products in the non perpetual case, we have been able to reformulate their price as a function of the exercise frontier. In the...
Persistent link: https://www.econbiz.de/10005858581
We derive a closed-form asymptotic expansion formula for option implied volatility under a two-factor jump-diffusion stochastic volatility model when time-to-maturity is small. Based on numerical experiments we describe the range of time-to-maturity and moneyness for which the approximation is...
Persistent link: https://www.econbiz.de/10005858590