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Leverage and Feedback Effects on Multifactor Wishart Stochastic Volatility for Option Pricing
Asai, Manabu; McAleer, Michael - 2013
The paper proposes a general asymmetric multifactor Wishart stochastic volatility (AMWSV) diffusion process which accommodates leverage, feedback effects and multifactor for the covariance process. The paper gives the closed-form solution for the conditional and unconditional Laplace transform...
Persistent link: https://www.econbiz.de/10010326219
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Can standard preferences explain the prices of out-of-the-money S&P 500 put options?
Benzoni, Luca; Collin-Dufresne, Pierre; Goldstein, Robert S. - 2011
The 1987 stock market crash occurred with minimal impact on observable economic variables (e.g., consumption), yet dramatically and permanently changed the shape of the implied volatility curve for equity index options. Here, we propose a general equilibrium model that captures many salient...
Persistent link: https://www.econbiz.de/10010292137
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Explaining asset pricing puzzles associated with the 1987 market crash
Benzoni, Luca; Collin-Dufresne, Pierre; Goldstein, Robert S. - 2010
The 1987 market crash was associated with a dramatic and permanent steepening of the implied volatility curve for equity index options, despite minimal changes in aggregate consumption. We explain these events within a general equilibrium framework in which expected endowment growth and economic...
Persistent link: https://www.econbiz.de/10010292171
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An overreaction implementation of the coherent market hypothesis and option pricing
Schöbel, Rainer; Veith, Jochen - 2006
Inspired by the theory of social imitation (Weidlich 1970) and its adaptation to financial markets by the Coherent Market Hypothesis (Vaga 1990), we present a behavioral model of stock prices that supports the overreaction hypothesis. Using our dynamic stock price model, we develop a two factor...
Persistent link: https://www.econbiz.de/10010301798
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On a new class of barrier options
del Valle, Gerardo Hernández - 2014
A barrier option is a financial derivative which includes an activation (or deactivation) clause within a standard vanilla option. For instance, a copper mining company could secure to sell in at least K dollars each ton of copper during the next year, by buying M European put options. However,...
Persistent link: https://www.econbiz.de/10011445067
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Strategic option pricing
Bieta, Volker; Broll, Udo; Siebe, Wilfried - 2020
In this paper an extension of the well-known binomial approach to option pricing is presented. The classical question is: What is the price of an option on the risky asset? The traditional answer is obtained with the help of a replicating portfolio by ruling out arbitrage. Instead a two-person...
Persistent link: https://www.econbiz.de/10012267197
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On transaction-cost models in continuous-time markets
Poufinas, Thomas - In: International Journal of Financial Studies 3 (2015) 2, pp. 102-135
Transaction-cost models in continuous-time markets are considered. Given that investors decide to buy or sell at certain time instants, we study the existence of trading strategies that reach a certain final wealth level in continuous-time markets, under the assumption that transaction costs,...
Persistent link: https://www.econbiz.de/10011708976
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The Pricing of Derivatives on Assets with Quadratic Volatility
Zühlsdorff, Christian - 2002
The basic model of financial economics is the Samuelson model of geometric Brownian motion because of the celebrated Black-Scholes formula for pricing the call option. The asset's volatility is a linear function of the asset value and the model garantees positive asset prices. In this paper it...
Persistent link: https://www.econbiz.de/10010317656
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Numerics of implied binomial trees
Härdle, Wolfgang Karl; Myšičková, Alena - 2008
Market option prices in last 20 years confirmed deviations from the Black and Scholes (BS) models assumptions, especially on the BS implied volatility. Implied binomial trees (IBT) models capture the variations of the implied volatility known as volatility smile. They provide a discrete...
Persistent link: https://www.econbiz.de/10010275907
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Hedging barrier options: Current methods and alternatives
Dupont, Dominique Y. - 2001
This paper applies to the static hedge of barrier options a technique, mean-square hedging, designed to minimize the … size of the hedging error when perfect replication is not possible. It introduces an extension of this technique which … preserves the computational efficiency of mean-square hedging while being consistent with any prior pricing model or with any …
Persistent link: https://www.econbiz.de/10010292791