A Closed Form Approach To Valuing Risk Neutral Moments From Option Prices
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A Closed Form Approach To Valuing Risk Neutral Moments From Option Prices
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Author : Aristogenis Lazos
language : en
Publisher:
Release Date : 2018
A Closed Form Approach To Valuing Risk Neutral Moments From Option Prices written by Aristogenis Lazos and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018 with categories.
This paper develops closed-form solutions for the finite integrals in the volatility, cubic and quartic contracts in Bakshi, Kapadia and Madan (2003) which avoid discretization errors and do not involve interpolation and extrapolation. It compares the accuracy of the closed-form approach with the popular interpolation-extrapolation approach in the literature. Our results show that the closed-form approach provides more accurate estimates for skewness. This holds across different option pricing models and parameterization which have been shown to be favourable for the interpolation-extrapolation approach. Finally, our results show that the closed-form approach always extracts expectations consistent with the term structure of the volatility smirk whereas the interpolation-extrapolation approach fails several times.
Option Implied Risk Neutral Distributions And Risk Aversion
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Author : Jens Carsten Jackwerth
language : en
Publisher:
Release Date : 2008
Option Implied Risk Neutral Distributions And Risk Aversion written by Jens Carsten Jackwerth and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with categories.
A Time Series Approach To Option Pricing
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Author : Christophe Chorro
language : en
Publisher: Springer
Release Date : 2014-12-04
A Time Series Approach To Option Pricing written by Christophe Chorro and has been published by Springer this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014-12-04 with Business & Economics categories.
The current world financial scene indicates at an intertwined and interdependent relationship between financial market activity and economic health. This book explains how the economic messages delivered by the dynamic evolution of financial asset returns are strongly related to option prices. The Black Scholes framework is introduced and by underlining its shortcomings, an alternative approach is presented that has emerged over the past ten years of academic research, an approach that is much more grounded on a realistic statistical analysis of data rather than on ad hoc tractable continuous time option pricing models. The reader then learns what it takes to understand and implement these option pricing models based on time series analysis in a self-contained way. The discussion covers modeling choices available to the quantitative analyst, as well as the tools to decide upon a particular model based on the historical datasets of financial returns. The reader is then guided into numerical deduction of option prices from these models and illustrations with real examples are used to reflect the accuracy of the approach using datasets of options on equity indices.
An Implicit Martingale Restriction In A Closed Form Higher Order Moments Option Pricing Formula Based On Multipoint Pad Approximants
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Author : Guillaume Bagnarosa
language : en
Publisher:
Release Date : 2018
An Implicit Martingale Restriction In A Closed Form Higher Order Moments Option Pricing Formula Based On Multipoint Pad Approximants written by Guillaume Bagnarosa and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018 with categories.
The purpose of this paper is to develop a new non-parametric method to price options based on normalized Multipoint Padé Approximants. Following the seminal paper of Padé (1892), we propose to approximate the risk-neutral distribution by a rational function of polynomials that can accommodate the asymmetric and leptokurtic characteristics of the implied state price densities. After recalling the general framework of Padé Approximants we present an analytical formula where we use a power series expansion of the risk-neutral density in order to infer the coefficients of the rational function of polynomials. A suitable alternative to this method will be to use various points of local expansion, resulting from the capability of the Padé to respect such a confluence. By manipulating the base option pricing formula with risk-neutral density (see Cox and Ross, 1976), both of these methods is implicitly satisfying the martingale constraint (see Longstaff, 1995 and Jurczenko, et al., 2006). We then investigate from simulated option prices the shape of the risk-neutral density Padé approximations to compare their radius of convergence.
Preference Free Option Pricing With Path Dependent Volatility
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Author : Steven L. Heston
language : en
Publisher:
Release Date : 1998
Preference Free Option Pricing With Path Dependent Volatility written by Steven L. Heston and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1998 with Options (Finance) categories.
Retrieving Risk Neutral Moments And Expected Quadratic Variation From Option Prices
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Author : Leonidas Rompolis
language : en
Publisher:
Release Date : 2017
Retrieving Risk Neutral Moments And Expected Quadratic Variation From Option Prices written by Leonidas Rompolis and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.
This paper derives exact formulas for retrieving risk neutral moments of future payoffs of any order from generic European-style option prices. It also provides an exact formula for retrieving the expected quadratic variation of the stock market implied by European option prices, which nowadays is used as an estimate of the implied volatility, and a formula approximating the jump component of this measure of variation. To implement the above formulas to discrete sets of option prices, the paper suggests a numerical procedure and provides upper bounds of its approximation errors. The performance of this procedure is evaluated through a simulation and an empirical exercise. Both of these exercises clearly indicate that the suggested numerical procedure can provide accurate estimates of the risk neutral moments, over different horizons ahead. These can be in turn employed to obtain accurate estimates of risk neutral densities and calculate option prices, efficiently, in a model-free manner. The paper also shows that, in contrast to the prevailing view, ignoring the jump component of the underlying asset can lead to seriously biased estimates of the new volatility index suggested by the Chicago Board Options Exchange (CBOE).
Option Pricing And Higher Order Moments Of The Risk Neutral Probability Density Function
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Author : Lawrence Edward Kochard
language : en
Publisher:
Release Date : 1999
Option Pricing And Higher Order Moments Of The Risk Neutral Probability Density Function written by Lawrence Edward Kochard and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1999 with categories.
Implied Volatility Surface
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Author :
language : en
Publisher:
Release Date : 2001
Implied Volatility Surface written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2001 with categories.
Extracting Risk Neutral Density And Its Moments From American Option Prices
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Author : Yisong S. Tian
language : en
Publisher:
Release Date : 2019
Extracting Risk Neutral Density And Its Moments From American Option Prices written by Yisong S. Tian and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
There has been a surge in the use of option-implied moments (e.g., volatility, skewness and kurtosis) in various empirical applications such as volatility forecasting, variance risk premium, empirical asset pricing, and portfolio selection. One potential obstacle in such applications is the requirement of European option prices in the estimation of these moments. In this paper, we develop a simple, accurate method for extracting risk-neutral density and its moments from American option prices. A key advantage of our approach is that a single implied binomial tree is constructed to fit all American option prices, utilizing the full information set in the entire options market. Since American options are more commonly traded than European options, our methodology expands the scope of research on option-implied density and moments to a much wider class of underlying assets (e.g., equity and futures options).
A Simplified Discrete Time Approach For The Pricing Of Derivative Securities With Stochastic Interest Rates
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Author : Kaushik I. Amin
language : en
Publisher:
Release Date : 1990
A Simplified Discrete Time Approach For The Pricing Of Derivative Securities With Stochastic Interest Rates written by Kaushik I. Amin and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1990 with Futures categories.