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Hermite polynomial based expansion of European option prices

Xiu, Dacheng - In: Journal of Econometrics 179 (2014) 2, pp. 158-177

We seek a closed-form series approximation of European option prices under a variety of diffusion models. The proposed convergent series are derived using the Hermite polynomial approach. Departing from the usual option pricing routine in the literature, our model assumptions have no...

Persistent link: https://www.econbiz.de/10010753477

Deriving Market Expectations for the Euro-Dollar Exchange Rate From Option Prices

Krichene, Noureddine - International Monetary Fund (IMF) - 2004

Option prices provide valuable information on market expectations. This paper attempts to extract market expectations, as conveyed by an implied risk-neutral probability distribution, from option prices for the dollar-euro exchange rate. Returns' volatilities are inferred from observed and...

Persistent link: https://www.econbiz.de/10005605330

Pricing Weather Derivatives

Richards, Timothy J.; Manfredo, Mark R.; Sanders, Dwight R. - Morrison School of Agribusiness & Resource Management, … - 2004

This paper presents a general method for pricing weather derivatives. Specification tests find that a temperature series for Fresno, California follows a mean-reverting Brownian motion process with discrete jumps and ARCH errors. Based on this process, we define an equilibrium pricing model for...

Persistent link: https://www.econbiz.de/10005805319

On Estimation of Volatility of Financial Time Series for Pricing Derivatives

Černý, Michal - In: Acta Oeconomica Pragensia 2008 (2008) 4, pp. 12-21

Estimation of volatility of financial time series plays a crucial role in pricing derivatives. Volatility is often … estimated from historical data; however, it is well known that volatility varies in time. We propose a method to choose a … suitable length of historical data to estimate contemporary volatility. The method is based on adaptation of a procedure used …

Persistent link: https://www.econbiz.de/10005036300

Spain; Financial Sector Assessment Program: Technical Note: Stress Testing Methodology and Results

International Monetary Fund (IMF); International … - 2006

This report presents a description of the stress test exercises for Spainâ€™s banking and insurance systems. The exercises were carried out in the context of the Financial Sector Assessment Program with the aim of assessing the resilience of the financial system to key risks. It describes...

Persistent link: https://www.econbiz.de/10011245836

A Primer for Risk Measurement of Bonded Debt From the Perspective of a Sovereign Debt Manager

Papaioannou, Michael G. - International Monetary Fund (IMF) - 2006

This paper presents some conventional and new measures of market, credit, and liquidity risks for government bonds. These measures are analyzed from the perspective of a sovereign's debt manager. In particular, it examines duration, convexity, M-square, skewness, kurtosis, and VaR statistics as...

Persistent link: https://www.econbiz.de/10005825661

Measuring Systemic Risk-Adjusted Liquidity (SRL); A Model Approach

Jobst, Andreas - International Monetary Fund (IMF) - 2012

Little progress has been made so far in addressingâ€”in a comprehensive wayâ€”the externalities caused by impact of the interconnectedness within institutions and markets on funding and market liquidity risk within financial systems. The Systemic Risk-adjusted Liquidity (SRL) model...

Persistent link: https://www.econbiz.de/10011242398

Germany; Technical Note on Stress Testing

International Monetary Fund (IMF); International … - 2011

This note summarizes the stress tests undertaken for the German banking system as part of the Financial Sector Assessment Program (FSAP) update. Solvency tests for the German banking system assessed medium-term vulnerabilities under two adverse macroeconomic scenarios. The tests considered a...

Persistent link: https://www.econbiz.de/10011242747

Volatility Components, Affine Restrictions and Non-Normal Innovations

Christoffersen, Peter; Dorion, Kris; Wang, Yintian - School of Economics and Management, University of Aarhus - 2008

Recent work by Engle and Lee (1999) shows that allowing for long-run and short-run components greatly enhances a GARCH model’s ability fit daily equity return dynamics. Using the risk-neutralization in Duan (1995), we assess the option valuation performance of the Engle-Lee model and compare...

Persistent link: https://www.econbiz.de/10005440037

Criticism of the Black-Scholes Model: But Why Is It Still Used? (The Answer Is Simpler than the Formula).

Yalincak, Orhun Hakan - Volkswirtschaftliche Fakultät, … - 2005

The Black Scholes Model (BSM) is one of the most important concepts in modern financial theory both in terms of approach and applicability. The BSM is considered the standard model for valuing options; a model of price variation over time of financial instruments such as stocks that can, among...

Persistent link: https://www.econbiz.de/10011211858

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