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Black scholes for portfolios of options in discrete time : the price is right, the hedge is wrong

Peeters, Bas; Dert, Cees; Lucas, André - 2003

Persistent link: https://www.econbiz.de/10001884326

Black scholes for portfolios of options in discrete time : the price is right, the hedge is wrong

Peeters, Bas; Dert, Cees; Lucas, André - 2003

Taking a portfolio perspective on option pricing and hedging, we show that within the standard Black …) hedging the total risk of each option separately, the correct hedge portfolio in discrete time eliminates linear (delta) as … indefinitely. This ties the literature on option pricing and hedging closer together with the APT literature in its focus on …

Persistent link: https://www.econbiz.de/10011334345

Pricing stock options under stochastic volatility and stochastic interest rates with efficient method of moments estimation

Jiang, George J.; Sluis, Pieter J. van der - 1998

While the stochastic volatility (SV) generalization has been shown to improvethe explanatory power compared to the Black-Scholes model, the empiricalimplications of the SV models on option pricing have not been adequately tested.The purpose of this paper is to first estimate a multivariate SV...

Persistent link: https://www.econbiz.de/10011284060

Mixed hitting - time models

Abbring, Jaap H. - 2007

Persistent link: https://www.econbiz.de/10003609106

Forecasting the variability of stock index returns with stochastic volatility models and implied volatility

Hol Uspensky, Eugenie; Koopman, Siem Jan - 2000

In this paper we compare the predictive abilility of Stochastic Volatility (SV)models to that of volatility forecasts implied by option prices. We develop anSV model with implied volatility as an exogeneous var able in the varianceequation which facilitates the use of statistical tests for...

Persistent link: https://www.econbiz.de/10011304384

Intraday stochastic volatility in discrete price changes : the dynamic Skellam model

Koopman, Siem Jan; Lit, Rutger; Lucas, André - 2015

We introduce a dynamic Skellam model that measures stochastic volatility from high-frequency tick-by-tick discrete stock price changes. The likelihood function for our model is analytically intractable and requires Monte Carlo integration methods for its numerical evaluation. The proposed...

Persistent link: https://www.econbiz.de/10011295740

A pricing model for American options with stochastic interest rates

Menkveld, Albert J.; Vorst, Ton - 1998

In this paper we introduce a new methodology to price American put options under stochastic interestrates. The method is a combination of an analytic approach and a binomial tree approach. We constructa binomial tree for the forward risk adjusted tree and calculate analytically the expected...

Persistent link: https://www.econbiz.de/10010533199

Mixed hitting-time models

Abbring, Jaap H. - 2009

We study a mixed hitting-time (MHT) model that specifies durations as the first time a Lévy process - a continuous-time process with stationary and independent increments - crosses a heterogeneous threshold. Such models are of substantial interest because they can be reduced from...

Persistent link: https://www.econbiz.de/10011372965

Asset pricing in incomplete markets : valuing gas storage capacity

Zhao, Lin; Wijnbergen, Sweder van - 2015

hedging product for the spot market, and the demand for this product is high when the market becomes risky: more risk averse …

Persistent link: https://www.econbiz.de/10011333083

A comparison of biased simulation schemes for stochastic volatility models

Lord, Roger; Koekkoek, Remmert; Dijk, Dick van - 2008 - This version: February 6, 2008

When using an Euler discretisation to simulate a mean-reverting square root process, one runs into the problem that while the process itself is guaranteed to be nonnegative, the discretisation is not. Although an exact and efficient simulation algorithm exists for this process, at present this...

Persistent link: https://www.econbiz.de/10011349176