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Option Pricing and Hedging for Discrete Time Autoregressive Hidden Markov Model
Caccia, Massimo - 2017
In this paper we solve the discrete time mean-variance hedging problem when asset returns follow a multivariate … daily returns. Secondly, we present out-of-sample hedging results on S&P 500 vanilla options as well as a trading strategy … based on theoretical prices, which we compare to simpler models including the classical Black-Scholes delta-hedging approach …
Persistent link: https://www.econbiz.de/10012953054
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Goodness-of-Fit for Regime-Switching Copula Models with Application to Option Pricing
Nasri, Bouchra R. - 2019
We consider several time series and for each of them, we fit an appropriate dynamic parametric model. This produces serially independent error terms for each time series. The dependence between these error terms is then modeled by a regime-switching copula. The EM algorithm is used for...
Persistent link: https://www.econbiz.de/10012891155
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Derivatives Pricing and Model Calibration Using Continuous Time Markov Chain Approximation Model
Lo, Chia - 2014
We propose a non-equidistant Q rate matrix setting formula such that a well-defined continuous time Markov chain can lead to excellent approximations to jump-diffusions with affine or non-affine functional specifications. This approach also accommodates state-dependent jump intensity and jump...
Persistent link: https://www.econbiz.de/10013065592
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Convergence Rate Analysis for the Continuous-Time Markov Chain Approximation of Occupation Time Derivatives and Asian Option Greeks
Ma, Jingtang - 2019
This paper establishes the second-order convergence rates of the continuous-time Markov chain (CTMC) approximation method for pricing continuously monitored occupation time derivatives (step options, conditional Asian options) and arithmetic Asian options and their Greeks. We fill the gap in the...
Persistent link: https://www.econbiz.de/10012896119
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Robust Bounds for Derivative Prices in Markovian Models
Sester, Julian - 2020
We study the optimal martingale transport problem under an additional constraint imposing the underlying process to be Markovian. This formulation results in a modified transportation problem in which the solutions correspond to robust price bounds for exotic derivatives within the class of...
Persistent link: https://www.econbiz.de/10012850709
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Temperature Modeling in the Weather Derivative Pricing
Lee, Jeo - 2012
This paper examines the theoretically obtained prices with values based on temperature data in the Isle of Man and the UK. We have also seen that the simulated temperature trajectories do not appear to include entire seasons where the temperature remains cooler than normal. Anecdotally we have...
Persistent link: https://www.econbiz.de/10013107672
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Derivative Pricing and Hedging in Asynchronous Markets
Jordinson, Christopher - 2013
We consider the problem of how to price and hedge derivatives on underlyings that trade on exchanges with no overlap in opening hours. For a simple two-stock model we derive the dynamics of closing prices, show how they can be simulated efficiently and what value we should put into pricing...
Persistent link: https://www.econbiz.de/10013085397
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Option Pricing and Hedging for Regime-Switching Geometric Brownian Motion Models
Remillard, Bruno - 2016
usually proposed in the literature. We show the solution minimizes the mean-variance hedging error under the objective measure …. Solutions for the option value and the optimal hedging strategy are easily obtained from Monte Carlo simulations. Two …
Persistent link: https://www.econbiz.de/10013004851
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An Efficient Rare Event Simulation-Based Methodology for Pricing and Risk Management of Financial Derivatives
Clark, Ephraim; Kontosakos, Vasileios; Mitra, Sovan; … - 2022
The severity and occurrence of rare events in financial markets has had a fundamental impact on the pricing and risk management of financial derivatives, such as volatility smile curves. However rare event modelling poses a problem in efficient and accurate simulation due to fundamental issues...
Persistent link: https://www.econbiz.de/10013406014
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A diffusion approximation to the Markov chains model of the financial market and the expected riskless profit under selling of call and put options /
Nagaev, Alexander V.; Nagaev, Sergei A.; Kunst, Robert M. - 2005
A discrete time model of financial markets is considered. It is assumed that the stock price evolution is described by a homogeneous Markov chain. In the focus of attention is the expected value of the guaranteed profit of the investor that arises when the jumps of the stock price are bounded....
Persistent link: https://www.econbiz.de/10009728973