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Sample path generation of the stochastic volatility CGMY process and its application to path-dependent option pricing
Kim, Young Shin - In: Journal of risk and financial management : JRFM 14 (2021) 2/77, pp. 1-18
This paper proposes the sample path generation method for the stochastic volatility version of the CGMY process. We …
Persistent link: https://www.econbiz.de/10012484130
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Arbitrage free approximations to candidate volatility surface quotations
Madan, Dilip B.; Schoutens, Wim - In: Journal of risk and financial management : JRFM 12 (2019) 2/69, pp. 1-21
difficulties for the use of Fourier inversion methodologies in volatility surface calibration. Continuous time Markov chain …
Persistent link: https://www.econbiz.de/10012022144
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GARCH option pricing models and the variance risk premium
Zhang, WenJun; Zhang, Jin E. - In: Journal of risk and financial management : JRFM 13 (2020) 3/51, pp. 1-21
one-month variance swap rate, i.e., the CBOE Volatility Index (VIX) accurately. Our research suggests that one should use …
Persistent link: https://www.econbiz.de/10012174118
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Maximum entropy evaluation of asymptotic hedging error under a generalised jump-diffusion model
Fard, Farzad Alavi; Doko Tchatoka, Firmin; … - In: Journal of risk and financial management : JRFM 14 (2021) 3/97, pp. 1-19
In this paper we propose a maximum entropy estimator for the asymptotic distribution of the hedging error for options. Perfect replication of financial derivatives is not possible, due to market incompleteness and discrete-time hedging. We derive the asymptotic hedging error for options under a...
Persistent link: https://www.econbiz.de/10012484861
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Computational finance
Stentoft, Lars - In: Journal of risk and financial management : JRFM 13 (2020) 7/145, pp. 1-4
use of computational methods and techniques for modelling financial asset prices, returns, and volatility, and on the use …
Persistent link: https://www.econbiz.de/10012309311
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Pricing perpetual American put options with asset-dependent discounting
Al-Hadad, Jonas; Palmowski, Zbigniew - In: Journal of risk and financial management : JRFM 14 (2021) 3, pp. 1-19
The main objective of this paper is to present an algorithm of pricing perpetual American put options with asset-dependent discounting. The value function of such an instrument can be described as VωAPut(s)=supτ∈TEs[e−∫0τω(Sw)dw(K−Sτ)+], where T is a family of stopping times, ω is...
Persistent link: https://www.econbiz.de/10012520043
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Quanto pricing beyond Black-Scholes
Fink, Holger Maria; Mittnik, Stefan - In: Journal of risk and financial management : JRFM 14 (2021) 3, pp. 1-27
Since their introduction, quanto options have steadily gained popularity. Matching Black-Scholes-type pricing models and, more recently, a fat-tailed, normal tempered stable variant have been established. The objective here is to empirically assess the adequacy of quanto-option pricing models....
Persistent link: https://www.econbiz.de/10012520134
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How much do negative probabilities matter in option pricing? : a case of a lattice-based approach for stochastic volatility models
Tseng, Chung-Li; Miao, Daniel Wei-Chung; Chung, San-Lin; … - In: Journal of risk and financial management : JRFM 14 (2021) 6, pp. 1-32
In this paper, we focus on two-factor lattices for general diffusion processes with state-dependent volatilities. Although it is common knowledge that branching probabilities must be between zero and one in a lattice, few methods can guarantee lattice feasibility, referring to the property that...
Persistent link: https://www.econbiz.de/10012587779
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On the asymptotic behavior of the optimal exercise price near expiry of an American put option under stochastic volatility
Chen, Wenting; Zhu, Song-Ping - In: Journal of risk and financial management : JRFM 15 (2022) 5, pp. 1-19
volatility model, such as the Heston model, has not been reported at all. Adopting the method of matched asymptotic expansions … volatility near expiry. Through our analyses, we are able to show that the option price will be quite different from that … the constant volatility case if the spot volatility is given the same value as the constant volatility in the Black …
Persistent link: https://www.econbiz.de/10013273116
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The Generalized Gamma distribution as a useful RND under Heston's stochastic volatility model
Boukai, Benzion - In: Journal of risk and financial management : JRFM 15 (2022) 6, pp. 1-18
options prices under Heston's stochastic volatility (SV) model. We demonstrate that under a particular reparametrization, this … volatility 'smile', which indicates a likely distortion in the Black-Scholes modeling of such option data. Reflective of entirely … different market expectations, this distortion in the volatility 'smile' appears not to exist in the TLT option data. We provide …
Persistent link: https://www.econbiz.de/10013273577