Empirical Performance Of Alternative Option Pricing Models
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Empirical Performance Of Alternative Option Pricing Models
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Author : Konstantinos Pitsounis
language : en
Publisher:
Release Date : 1999
Empirical Performance Of Alternative Option Pricing Models written by Konstantinos Pitsounis 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.
Empirical Performance Of Alternative Option Pricing Models
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Author : Zhiwu Chen
language : en
Publisher:
Release Date : 2000
Empirical Performance Of Alternative Option Pricing Models written by Zhiwu Chen and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2000 with categories.
Substantial progress has been made in extending the Black-Scholes model to incorporate such features as stochastic volatility, stochastic interest rates and jumps.On the empirical front, however, it is not yet known whether and by how much each generalized feature will improve option pricing and hedging performance. This paper fills this gap by first developing an implementable option model in closed form that allows volatility, interest rates and jumps to bestochastic and that is parsimonious in the number of parameters. The model includes many known ones as special cases. Delta-neutral and single-instrument minimum-variance hedging strategies are derived analytically. Using Samp;P 500 options, we examine a set of alternative models from three perspectives: (1) internal consistency of implied parameters/volatility with relevant time-series data, (2)out-of-sample pricing and (3) hedging performance. The models of focus include the benchmark Black-Scholes formula and the ones that respectively allow for (i) stochastic volatility, (ii) both stochastic volatility and stochastic interest rates, and (iii) stochastic volatility and jumps.Overall, incorporating both stochastic volatility and random jumps produces the best pricing performance and the most internally-consistent implied-volatility process. Its implied volatility does not quot;smilequot; across moneyness. But, for hedging, adding either jumps or stochastic interest rates does not seem to improve performance any further once stochastic volatility is taken into account.
Empirical Performance Study Of Alternative Option Pricing Models
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Author : Sofiane Aboura
language : en
Publisher:
Release Date : 2015
Empirical Performance Study Of Alternative Option Pricing Models written by Sofiane Aboura and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.
The mispricing of the deep-in-the money and deep-out-the-money generated by the Black-Scholes (1973) model is now well documented in the literature. In this paper, we discuss different option valuation models on the basis of empirical tests carry out on the French option market. We examine methods that account for non-normal skewness and kurtosis, relax the martingale restriction, mix two log-normal distributions, and allows either for jump diffusion process or for stochastic volatility. We find that the use of a jump diffusion and stochastic volatility model performs as well as the inclusion of non normal skewness and kurtosis in terms of precision in the option valuation.Keywords : Implied Volatility, Stochastic Volatility Model, Jump Diffusion Model, Skewness, Kurtosis.
Empirical Performance Of Option Pricing Models With Stochastic Local Volatility
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Author : Greg Orosi
language : en
Publisher:
Release Date : 2014
Empirical Performance Of Option Pricing Models With Stochastic Local Volatility written by Greg Orosi and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.
We examine the empirical performance of several stochastic local volatility models that are the extensions of the Heston stochastic volatility model. Our results indicate that the stochastic volatility model with quadratic local volatility significantly outperforms the stochastic volatility model with CEV type local volatility. Moreover, we compare the performance of these models to several other benchmarks and find that the quadratic local volatility model compares well to the best performing option pricing models reported in the current literature for European-style S&P500 index options. Our results also indicate that the model with quadratic local volatility reproduces the characteristics of the implied volatility surface more accurately than the Heston model. Finally, we demonstrate that capturing the shape of the implied volatility surface is necessary to price binary options accurately.
Empirical Studies Of Alternative Option Pricing Models
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Author : Constant Eduard Beckers
language : en
Publisher:
Release Date : 1986
Empirical Studies Of Alternative Option Pricing Models written by Constant Eduard Beckers and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1986 with categories.
An Empirical Comparison Of Alternative Stochastic Volatility Option Pricing Models
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Author : Tiezhu Gao
language : en
Publisher:
Release Date : 2006
An Empirical Comparison Of Alternative Stochastic Volatility Option Pricing Models written by Tiezhu Gao and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006 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 Empirical Comparison Of Alternative Option Pricing Models
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Author : Ta-Peng Wu
language : en
Publisher:
Release Date : 2000
An Empirical Comparison Of Alternative Option Pricing Models written by Ta-Peng Wu and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2000 with Options (Finance) categories.
Two Essays In Financial Economics
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Author : Han-Hsing Lee
language : en
Publisher:
Release Date : 2007
Two Essays In Financial Economics written by Han-Hsing Lee and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with Elasticity (Economics) categories.
Empirical Performance Of Models For Valuation And Risk Management Of Barrier Options
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Author : Cathrine Jessen
language : en
Publisher:
Release Date : 2009
Empirical Performance Of Models For Valuation And Risk Management Of Barrier Options written by Cathrine Jessen and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009 with categories.
In this paper the empirical performance of alternative models for barrier option valuation and risk management is studied. Five commonly used models are compared: the Black-Scholes model, the constant elasticity of variance model, the Heston stochastic volatility model, the Merton jump-diffusion model, and the infinite activity Variance Gamma model. We employ time-series data from the USD/EUR exchange rate market, and use plain vanilla option prices as well as a unique data-set of observed market values of barrier options. The different models are calibrated to the plain vanilla option prices, and cross-sectional and predicted pricing errors for both plain vanilla and barrier options are investigated. For the plain vanilla options the Heston model has superior performance both in cross-section and for prediction horizons of up to one month, with its closest competitors being the Merton and the Variance Gamma models. For the barrier options, the Heston model has a slightly, but not significantly, better performance than the continuous alternatives Black-Scholes and constant elasticity of variance, while both models with jumps(Merton and Variance Gamma) perform markedly worse.