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Inflation Effect on Value Calculation of Asian Real Option
Trifonov, Yuriy - 2013
This paper establishes a degree of influence between an inflation rate and a risk-free investment rate on the precision … inflation rate beyond profitability of risk-free investments, which is typical for Russia, an option valuation in a trinomial …
Persistent link: https://www.econbiz.de/10013071532
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A Local Volatility Model to Price and Calibrate Year-on-Year and Zero-Coupon Inflation Options
Ribeiro, Diana - 2013
-coupon inflation options. This model provides an exact fit to year-on-year implied volatilities and to year-on-year forward convexity … model primitive is the year-on-year inflation ratio, which follows an exponential mean reverting process. The pricing of … ensures that the model hits the market inflation index forward curve. The model is then extended to price and calibrate zero …
Persistent link: https://www.econbiz.de/10013079397
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Coherent CVA and FVA with Liability Side Pricing of Derivatives
Lou, Wujiang - 2018
This article presents the liability-side pricing model of uncollateralized derivatives. In an extension to the risk-neutral pricing formula, the fair value is obtained by discounting the payoff at the liability-side's senior unsecured debt interest rates. The price difference from the default...
Persistent link: https://www.econbiz.de/10012937927
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A new predictor of real economic activity : the S&P 500 option implied risk aversion
Sarantopoulou-Chiourea, Sylvia; Skiadopoulos, George - 2015 - This draft: 17 March 2015
We propose a new predictor of real economic activity (REA), namely the representative investor's implied relative risk aversion (IRRA) extracted from S&P 500 option prices. IRRA exploits the forward-looking information in option prices. It increases as risk averse investors enter the market,...
Persistent link: https://www.econbiz.de/10010499597
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Extracting implicit density functions from short term interest rate options
Nielsen, Hannah - 2001
Using option prices the expectations of the market participants concerning the underlying asset can be extracted as well as the uncertainty surrounding these expectations. In this paper a mixture of lognormal density functions will be assumed to analyze options on three-month Euribor futures for...
Persistent link: https://www.econbiz.de/10009614294
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Derivatives Mismarking Cases
Macey-Dare, Rupert - 2012
This paper considers recent derivatives mismarking cases from Bacon 1996 and Truelove and Steel 1997 through to Piper 2009 and Montserret 2009. The behavioural, institutional, risk-reward and regulatory drivers of these cases are reviewed as well as associated derivatives mismarking techniques...
Persistent link: https://www.econbiz.de/10013097744
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Too-Systemic-To-Fail : What Option Markets Imply About Sector-Wide Government Guarantees
Kelly, Bryan T. - 2015
We examine the pricing of financial crash insurance during the 2007-2009 financial crisis in U.S. option markets, and we show that a large amount of aggregate tail risk is missing from the cost of financial sector crash insurance during the crisis. The difference in costs between...
Persistent link: https://www.econbiz.de/10013038170
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Too-Systemic-To-Fail : What Option Markets Imply About Sector-Wide Government Guarantees
Kelly, Bryan T. - 2015
We examine the pricing of financial crash insurance during the 2007-2009 financial crisis in U.S. option markets, and we show that a large amount of aggregate tail risk is missing from the cost of financial sector crash insurance during the crisis. The difference in costs between...
Persistent link: https://www.econbiz.de/10013038266
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Learning, Confidence, and Option Prices
Shaliastovich, Ivan - 2015
The asset-market evidence suggests that investors are concerned with large downward moves in equity prices, which occur about once every one or two years in the data. This evidence is puzzling as there are no concurrent jumps in macroeconomic fundamentals at such frequencies. I estimate a...
Persistent link: https://www.econbiz.de/10013038881
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Distorting Arrow-Debreu Securities : New Entropy Restrictions Implied by the Option Cross Section
Chabi-Yo, Fousseni - 2020
Replacing equity return (as in the equity risk premium) with returns on an arbitrary contingent claim, we obtain a new class of economic risk premiums to impose upon candidate models. These risk premiums reflect the distance between the physical and risk-neutral moments for asset returns, can be...
Persistent link: https://www.econbiz.de/10012844094