Showing 1 - 10 of 1,628
In the present paper we fill an essential gap in the Convertible Bonds pricing world by deriving a Binary Tree based model for valuation subject to credit risk. This model belongs to the framework known as Equity to Credit Risk. We show that this model converges in continuous time to the model...
Persistent link: https://www.econbiz.de/10013105598
We derive a closed-form expansion of option prices in terms of Black-Scholes prices and higher-order Greeks. We show how the true price of an option less its Black-Scholes price is given by a series of premiums on higher-order risks that are not priced under the Black-Scholes model assumptions....
Persistent link: https://www.econbiz.de/10013064395
We propose a numerical procedure for the pricing of financial contracts whose contingent claims are exposed to two sources of risk: the stock price and the short interest rate. More precisely, in our pricing framework we assume that the stock price dynamics is described by the Cox, Ross...
Persistent link: https://www.econbiz.de/10013127231
The Markov Tree model is a discrete-time option pricing model that accounts for short-term memory of the underlying asset. In this work, we compare the empirical performance of the Markov Tree model against that of the Black-Scholes model and Heston's stochastic volatility model. Leveraging a...
Persistent link: https://www.econbiz.de/10011312214
This paper implements an algorithm that can be used to solve systems of Black-Scholes equations for implied volatility and implied risk-free rate of return. After using a seemingly unrelated regressions (SUR) model to obtain point estimates for implied volatility and implied risk-free rate, the...
Persistent link: https://www.econbiz.de/10013034300
In this article, we generalize the classical Edgeworth series expansion used in the option pricing literature. We obtain a closed-form pricing formula for European options by employing a generalized Hermite expansion for the risk-neutral density. The main advantage of the generalized expansion...
Persistent link: https://www.econbiz.de/10012938243
This paper introduces a unified machine learning framework for solving general asset pricing problems. Building on representations of asset prices in discrete-time and continuous-time models, we develop a solution strategy using neural networks and further machine learning techniques to...
Persistent link: https://www.econbiz.de/10013290180
We explore a multi-asset jump-diffusion pricing model, combining a systemic risk asset with several conditionally independent ordinary assets. Our approach allows for analyzing and modeling a portfolio that integrates high-activity security, such as an exchange trading fund (ETF) tracking a...
Persistent link: https://www.econbiz.de/10014446758
While the proportional hazard model is recognized to be statistically meaningful for analyzing and estimating financial event risks, the existing literature that analytically deals with the valuation problems is very limited. In this paper, adopting the proportional hazard model in continuous...
Persistent link: https://www.econbiz.de/10013094076
In a two-period setup we develop a generalization of good-deal bounds that allows to include in the problem the implications of asset pricing models. Our basis is the distance behind Hansen and Jagannathan's measure of model misspecification since a volatility constraint on the stochastic...
Persistent link: https://www.econbiz.de/10001600073