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Extended Libor Market Models with Affine and Quadratic Volatility

Zühlsdorff, Christian - 2000

The market model of interest rates specifies simple forward or Libor rates as lognormaly distributed, their stochastic dynamics has a linear volatility function. This model is extended to quadratic volatility which is the product of a quadratic polynomial and a level-independent covariance...

Persistent link: https://www.econbiz.de/10005842790

An Examination of the Effects of Parameter Misspecification

Dudenhausen, Antje; Schlögl, Lutz - 2002

It is well-known that Gaussian hedging strategies are robust in the sense that they always lead to a cost process of bounded variation and that a superhedge is possible if upper bounds on the volatility of the relevant processes are available, cf. El Karoui, Jeanblanc-Picque and Shreve (1998)...

Persistent link: https://www.econbiz.de/10005842793

Valuation of Barrier Options in a Black-Scholes Setup with Jump Risk

Leisen, Dietmar - 1999

This paper discusses the pitfalls in the pricing of barrier options using approximations of the underlying continuous processes via discrete lattice models. These problems are studied first in a Black-Scholes model. Improvements result from a trinomial model and a further modified model where...

Persistent link: https://www.econbiz.de/10009138374

Continuous-Time Limits in the Generalized Ho/Lee Framework under the Forward Measure

Sommer, Daniel - Sonderforschungsbereich Information und die … - 1996

The forward measure in the discrete time Ho/Lee model is derived and passages to the continuous time limit are carried out under this measure. In particular the continuous time valuation formula for call options on zero coupon bonds is obtained as a limit of its discrete time equivalent as well...

Persistent link: https://www.econbiz.de/10009138381

The Probability Density Function of Interest Rates Implied in the Price of Options

Fornari, Fabio; Violi, Roberto - 2006

generalizes the familiar Black and Scholes option pricing model by letting the returns of the underlying asset follow a mean … the squared deviations between predicted and true option prices. The ability of the model to fit observed option prices …

Persistent link: https://www.econbiz.de/10014058544

Recovering Statistical Theory in the Context of Model Calibrations

Madan, Dilip B. - 2014

Statistical theory has been relatively absent in the exercise of estimating parameters of an option pricing model from …

Persistent link: https://www.econbiz.de/10013064348

A Bayesian approach for inference on probabilistic surveys

Del Negro, Marco; Casarin, Roberto; Bassetti, Federico - 2022

We propose a nonparametric Bayesian approach for conducting inference on probabilistic surveys. We use this approach to study whether U.S. Survey of Professional Forecasters density projections for output growth and inflation are consistent with the noisy rational expectations hypothesis. We...

Persistent link: https://www.econbiz.de/10013336345

Canonical Representation Of Option Prices and Greeks with Implications for Market Timing

Cadogan, Godfrey - 2010

We introduce a canonical representation of call options, and propose a solution to two open problems in option pricing … theory. The first problem was posed by (Kassouf, 1969, pg. 694) seeking “theoretical substantiation” for his robust option … the call option price in his option pricing model with stochastic volatility–without appealing to an equilibrium asset …

Persistent link: https://www.econbiz.de/10015222071

Generic Price Model for Commodity Derivatives

Lee, David - 2022

This article develops a new framework for modeling the dynamics of commodity forward curves and pricing commodity derivatives. The model accommodates a generic calibration procedure to ensure that the model prices for vanilla options match exactly the market prices. Empirically we show that the...

Persistent link: https://www.econbiz.de/10015268443

A Nonparametric Option Pricing Model Using Higher Moments

Cayton, Peter Julian - 2015

through return data transformation. The model complies with the put-call parity principle of option pricing theory. The …

Persistent link: https://www.econbiz.de/10015247274