Stochastic Volatility Option Pricing

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Application Of Stochastic Volatility Models In Option Pricing

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Author : Pascal Debus
language : de
Publisher: GRIN Verlag
Release Date : 2013-09-09

Application Of Stochastic Volatility Models In Option Pricing written by Pascal Debus and has been published by GRIN Verlag this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013-09-09 with Business & Economics categories.

Bachelorarbeit aus dem Jahr 2010 im Fachbereich BWL - Investition und Finanzierung, Note: 1,2, EBS Universität für Wirtschaft und Recht, Sprache: Deutsch, Abstract: The Black-Scholes (or Black-Scholes-Merton) Model has become the standard model for the pricing of options and can surely be seen as one of the main reasons for the growth of the derivative market after the model ́s introduction in 1973. As a consequence, the inventors of the model, Robert Merton, Myron Scholes, and without doubt also Fischer Black, if he had not died in 1995, were awarded the Nobel prize for economics in 1997. The model, however, makes some strict assumptions that must hold true for accurate pricing of an option. The most important one is constant volatility, whereas empirical evidence shows that volatility is heteroscedastic. This leads to increased mispricing of options especially in the case of out of the money options as well as to a phenomenon known as volatility smile. As a consequence, researchers introduced various approaches to expand the model by allowing the volatility to be non-constant and to follow a sto-chastic process. It is the objective of this thesis to investigate if the pricing accuracy of the Black-Scholes model can be significantly improved by applying a stochastic volatility model.

Option Pricing Models And Volatility Using Excel Vba

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Author : Fabrice D. Rouah
language : en
Publisher: John Wiley & Sons
Release Date : 2012-06-15

Option Pricing Models And Volatility Using Excel Vba written by Fabrice D. Rouah and has been published by John Wiley & Sons this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012-06-15 with Business & Economics categories.

This comprehensive guide offers traders, quants, and students the tools and techniques for using advanced models for pricing options. The accompanying website includes data files, such as options prices, stock prices, or index prices, as well as all of the codes needed to use the option and volatility models described in the book. Praise for Option Pricing Models & Volatility Using Excel-VBA "Excel is already a great pedagogical tool for teaching option valuation and risk management. But the VBA routines in this book elevate Excel to an industrial-strength financial engineering toolbox. I have no doubt that it will become hugely successful as a reference for option traders and risk managers." —Peter Christoffersen, Associate Professor of Finance, Desautels Faculty of Management, McGill University "This book is filled with methodology and techniques on how to implement option pricing and volatility models in VBA. The book takes an in-depth look into how to implement the Heston and Heston and Nandi models and includes an entire chapter on parameter estimation, but this is just the tip of the iceberg. Everyone interested in derivatives should have this book in their personal library." —Espen Gaarder Haug, option trader, philosopher, and author of Derivatives Models on Models "I am impressed. This is an important book because it is the first book to cover the modern generation of option models, including stochastic volatility and GARCH." —Steven L. Heston, Assistant Professor of Finance, R.H. Smith School of Business, University of Maryland

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.

Stochastic Volatility And Fx Option Pricing

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Author : Bernd Mahler
language : en
Publisher:
Release Date : 2010

Stochastic Volatility And Fx Option Pricing written by Bernd Mahler and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010 with categories.

This paper analyzes if the implied volatility surface of foreign exchange options should be modelled by using classical stochastic volatility option pricing models or if more complex models like the Stochastic Skew models recently proposed by Carr and Wu (2004) are required. For this purpose three stochastic volatility models including the Heston model (1993), a restricted Heston model, a Hull White (1987) Model as well as three Stochastic Skew models based on different Jump structures, are calibrated and applied to the pricing of EURUSD and USDJPY options issued on the German foreign exchange options retail market. The comparison of market prices and model prices indicate that both for EURUSUD and USDJPY Stochastic Skew models based on time-changed Lévy processes mostly outperform traditional stochastic volatility models like Heston in capturing highly skewed implied volatility surfaces.

The Performance Of Popular Stochastic Volatility Option Pricing Models During The Subprime Crisis

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Author : Thibaut Moyaert
language : en
Publisher:
Release Date : 2016

The Performance Of Popular Stochastic Volatility Option Pricing Models During The Subprime Crisis written by Thibaut Moyaert and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.

Using daily options prices on the Eurostoxx 50 stock index over the whole year 2008, we compare the performance of three popular stochastic volatility models (Heston, 1993; Bates, 1996; Heston and Nandi, 2'007, in addition to the traditional Black-Scholes model and a proprietary trading desk model. We show that the most consistent in-sample and out-of-sample statistical performance is obtained for the internal model. However, the Bates model seems to be better suited to short term (out-of-the-money) options while the Heston model seems to perform better for medium or long term options. In terms of hedging performance, the Heston and Nandi model exhibits the best average, albeit most volatile, result and the Heston model outperforms the Black and Scholes model in terms of hedging errors, mainly for option contracts that mature in-the-money.

Option Valuation Under Stochastic Volatility

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Author : Alan L. Lewis
language : en
Publisher:
Release Date : 2000

Option Valuation Under Stochastic Volatility written by Alan L. Lewis and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2000 with Business & Economics categories.

Stochastic Volatility Option Pricing

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Author : Spiridon Floratos
language : en
Publisher:
Release Date : 2004

Stochastic Volatility Option Pricing written by Spiridon Floratos and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2004 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.

Option Pricing With Long Memory Stochastic Volatility Models

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Author : Zhigang Tong
language : en
Publisher: LAP Lambert Academic Publishing
Release Date : 2013

Option Pricing With Long Memory Stochastic Volatility Models written by Zhigang Tong and has been published by LAP Lambert Academic Publishing this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.

It is now known that long memory stochastic volatility models can capture the well-documented evidence of volatility persistence. However, due to the complex structures of the long memory processes, the analytical formulas for option prices are not available yet. In this book, we propose two fractional continuous time stochastic volatility models which are built on the popular short memory stochastic volatility models. Using the tools from stochastic calculus, fractional calculus and Fourier transform, we derive the (approximate) analytical solutions for option prices. We also numerically study the effects of long memory on option prices. We show that the fractional integration parameter has the opposite effect to that of volatility of volatility parameter. We also find that long memory models can accommodate the short term options and the decay of volatility skew better than the corresponding short memory models. These findings would appeal to the researchers and practitioners in the areas of quantitative finance.

Option Pricing Under Stochastic Volatility Model

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Author : Hak Min Lim
language : en
Publisher:
Release Date : 2003

Option Pricing Under Stochastic Volatility Model written by Hak Min Lim and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003 with categories.