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Adaptive Simulation Algorithms for Pricing American and Bermudan Options by Local Analysis of Financial Market

Belomestny, Denis; Milstein, Grigori N. - Sonderforschungsbereich Ökonomisches Risiko <Berlin> - 2005

Here we develop an approach for efficient pricing discrete-time American and Bermudan options which employs the fact that such options are equivalent to theEuropean ones with a consumption, combined with analysis of the market model over a small number of steps ahead. This approach allows...

Persistent link: https://www.econbiz.de/10005861418

Regression methods in pricing American and Bermudan options using consumption processes

Belomestny, Denis; Milstein, Grigori N.; Spokoiny, Vladimir - Sonderforschungsbereich Ökonomisches Risiko <Berlin>

Here we develop methods for e±cient pricing multidimensional discrete-time American and Bermudan options by using regression based algorithms together with a new approach towards constructing upper bounds for the price of the option...

Persistent link: https://www.econbiz.de/10005854704

Discrete-Time Stochastic Volatility Models and MCMC-Based Statistical Inference

Hautsch, Nikolaus; Ou, Yangguoyi - Sonderforschungsbereich Ökonomisches Risiko <Berlin> - 2008

In this paper, we review the most common specifications of discrete-time stochasticvolatility (SV) models and illustrate the major principles of corresponding MarkovChain Monte Carlo (MCMC) based statistical inference. We provide a hands-on approachwhich is easily implemented in empirical...

Persistent link: https://www.econbiz.de/10005862429

Numerics of Implied Binomial Trees

Härdle, Wolfgang; Mysickova, Alena - Sonderforschungsbereich Ökonomisches Risiko <Berlin> - 2008

, especially on the BS implied volatility. Implied binomialtrees (IBT) models capture the variations of the implied volatility … known as \volatility smile". They provide a discrete approximation to the continuous risk neutral process for the underlying … Barle and Cakici (BC). After the formation of IBT we can estimate the implied local volatility and thestate price density …

Persistent link: https://www.econbiz.de/10005860517

DSFM fitting of Implied Volatility Surfaces

Borak, Szymon; Fengler, Matthias R.; Härdle, Wolfgang - Sonderforschungsbereich Ökonomisches Risiko <Berlin> - 2005

Implied volatility is one of the key issues in modern quantitative finance, since plain vanilla option prices contain … yield low dimensional representations of the implied volatility surface (IVS). We discussestimation issues of the model and …

Persistent link: https://www.econbiz.de/10005862106

Common Functional Implied Volatility Analysis

Benko, Michal; Härdle, Wolfgang - Sonderforschungsbereich Ökonomisches Risiko <Berlin> - 2005

implied volatilities (IV) plays an important role, since volatility is the crucial parameter in the Black-Scholes (BS) pricing … known as volatility smiles or smirks that contradict the assumption of constant volatility in the BS pricing model. On the …

Persistent link: https://www.econbiz.de/10005862325

FFT Based Option Pricing

Borak, Szymon; Detlefsen, Kai; Härdle, Wolfgang - Sonderforschungsbereich Ökonomisches Risiko <Berlin> - 2005

option prices. But some of its assumptions, like constant volatility or log-normal distribution of asset prices,do not find … implied volatility surface. To overcome this problem Carr and Madan (1999) developed a fast method to compute option prices …

Persistent link: https://www.econbiz.de/10005862326

Sensitivities for Bermudan Options by Regression Methods

Belomestny, Denis; Milstein, Grigori; Schoenmakers, John - Sonderforschungsbereich Ökonomisches Risiko <Berlin> - 2007

In this article we propose several pathwise and finite difference basedmethods for calculating sensitivities of Bermudan options using regressionmethods and Monte Carlo simulation. These methods rely on conditionalprobabilistic representations which allow, in combination with aregression...

Persistent link: https://www.econbiz.de/10005860987

Comparison of Panel Cointegration Tests

Örsal Karaman, Deniz Dilan - Sonderforschungsbereich Ökonomisches Risiko <Berlin> - 2007

The main aim of this paper is to compare the size and size-adjusted power prop-erties of four residual-based and one maximum-likelihood-based panel cointegrationtests with the help of Monte Carlo simulations. In this study the panel-rho, the group-rho, the panel-t, the group-t statistics of...

Persistent link: https://www.econbiz.de/10005861016

Forward and reverse representations for Markov chains

Milstein, Grigori N.; Schoenmakers, John G. M.; … - Sonderforschungsbereich Ökonomisches Risiko <Berlin> - 2006

In this paper we carry over the concept of reverse probabilistic representations developed in Milstein, Schoenmakers, Spokoiny (2004) for diffusion processes, to discrete time Markov chains. We outline the construction of reverse chains in several situations and apply this to processes which are...

Persistent link: https://www.econbiz.de/10005861319