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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

Risk-neutral systemic risk indicators

Malz, Allan M. - 2013

This paper describes a set of indicators of systemic risk computed from current market prices of equity and equity index options. It displays results from a prototype version, computed daily from January 2006 to January 2013. The indicators represent a systemic risk event as the realization of...

Persistent link: https://www.econbiz.de/10010333576

The underinvestment problem under conglomeration

Schnabel, Jacques A. - In: Cogent Economics & Finance 3 (2015) 1, pp. 1-5

This theoretical paper explores whether the underinvestment problem is aggravated or ameliorated by the formation of a pure conglomerate. It establishes that the answer depends critically on the volatility of corporate assets. If volatility is low, conglomeration ameliorates the underinvestment...

Persistent link: https://www.econbiz.de/10011559150

Use of Bayesian estimates to determine the volatility parameter input in the black-scholes and binomial option pricing models

Ho, Shu Wing; Lee, Alan J.; Marsden, Alastair - In: Journal of Risk and Financial Management 4 (2011) 1, pp. 74-96

The valuation of options and many other derivative instruments requires an estimation of exante or forward looking volatility. This paper adopts a Bayesian approach to estimate stock price volatility. We find evidence that overall Bayesian volatility estimates more closely approximate the...

Persistent link: https://www.econbiz.de/10011843228

Pricing and hedging with globally and instantaneously vanishing risk

Leitner, Johannes - In: Statistics & Decisions 25 (2007) 4, pp. 311-332

Summary Using a backward stochastic differential equation (BSDE) approach in a Brownian motion setting, we determine in an incomplete market an initial price Y 0 for a non-attainable claim ξ ∈ L p , 1 p ∞, that takes the hedging risk into account. Y 0 is chosen to be the best price such...

Persistent link: https://www.econbiz.de/10014621345

An empirical study of implied volatility in Australian index option markets

Yang, Qianqian - 2006

With the rapid development of option markets throughout the world, option pricing has become an important field in financial engineering. Among a variety of option pricing models, volatility of underlying asset is associated with risk and uncertainty, and hence is treated as one of the key...

Persistent link: https://www.econbiz.de/10009437996

Time-Changed L´evy Processes and Option Pricing

Carr, Pete; Wu, Liuren - 2002

As is well known, the classic Black-Scholes option pricing model assumes that returns follow Brownian motion. It is widely recognized that return processes differ from this benchmark in at least three important ways. First, asset prices jump, leading to non-normal return innovations. Second,...

Persistent link: https://www.econbiz.de/10009440724

What Type of Process Underlies Options? A Simple Robust Test

CARR, PETER; WU, LIUREN - 2002

We develop a simple robust test for the presence of continuous and discontinuous (jump) components in the price of an asset underlying an option. Our test examines the prices of at-the-money and out-of-the-money options as the option maturity approaches zero. We show that these prices converge...

Persistent link: https://www.econbiz.de/10009440725

Static Hedging of Standard Options

CARR, PETER; WU, LIUREN - 2002

short term, more liquid options based on a quadrature rule. We use Monte Carlo simulation to determine the hedging error … based on daily rebalancing in the underlying futures. The simulation results indicate that the two types of strategies have … diffusion model. Further simulation exercises indicate that these results are robust to model misspecification, so long as one …

Persistent link: https://www.econbiz.de/10009440737

Calculation aspects of the European Rebalanced Basket Option using Monte Carlo methods

Van der Merwe, Carel Johannes - 2010

ENGLISH ABSTRACT: Life insurance and pension funds offer a wide range of products that are invested in a mix ofassets. These portfolios (II), underlying the products, are rebalanced back to predetermined fixedproportions on a regular basis. This is done by selling the better performing assets...

Persistent link: https://www.econbiz.de/10009442047