Author: Erick Treviño AguilarPublisher:
ISBN:
Category :
Languages : en
Pages : 151
Book Description
American Options in Incomplete Markets
Author: Erick Treviño AguilarPublisher:
ISBN:
Category :
Languages : en
Pages : 151
Book Description
Closed-Form Solutions for Options in Incomplete Markets
Author: Oana FloroiuPublisher:
ISBN:
Category :
Languages : en
Pages : 23
Book Description
This paper reconsiders the predictions of the standard option pricing models in the context of incomplete markets. We relax the completeness assumption of the Black-Scholes (1973) model and as an immediate consequence we can no longer construct a replicating portfolio to price the option. Instead, we use the good-deal bounds technique to arrive at closed-form solutions for the option price. We determine an upper and a lower bound for this price and find that, contrary to Black-Scholes (1973) options theory, increasing the volatility of the underlying asset does not necessarily increase the option value. In fact, the lower bound prices are always a decreasing function of the volatility of the underlying asset, which cannot be explained by a Black-Scholes (1973) type of argument. In contrast, this is consistent with the presence of unhedgeable risk in the incomplete market. Furthermore, in an incomplete market where the underlying asset of an option is either infrequently traded or non-traded, early exercise of an American call option becomes possible at the lower bound, because the economic agent wants to lock in value before it disappears as a result of increased unhedgeable risk.
On the Inefficiency of the American Option Contract in Incomplete Markets
Author: Fausto MignanegoOptions in Incomplete Markets
Author: Naomi Shpirer BelferStock Options in Complete and Incomplete Markets
Author: Barry Neil SchachterPublisher:
ISBN:
Category : Restricted stock options
Languages : en
Pages : 308
Book Description
Incomplete Markets and Incentives to Set Up an Options Exchange
Author: Douglas GaleOptions Markets
Author: John C. CoxPublisher: Prentice Hall
ISBN:
Category : Business & Economics
Languages : en
Pages : 518
Book Description
Includes the first published detailed description of option exchange operations, the first published treatment using only elementary mathematics and the first step-by-step procedure for implementing the Black-Scholes formula in actual trading.
How to Gamble If You Must
Author: Lester E. DubinsPublisher: Courier Corporation
ISBN: 0486780643
Category : Mathematics
Languages : en
Pages : 307
Book Description
This classic of advanced statistics is geared toward graduate-level readers and uses the concepts of gambling to develop important ideas in probability theory. The authors have distilled the essence of many years' research into a dozen concise chapters. "Strongly recommended" by the Journal of the American Statistical Association upon its initial publication, this revised and updated edition features contributions from two well-known statisticians that include a new Preface, updated references, and findings from recent research. Following an introductory chapter, the book formulates the gambler's problem and discusses gambling strategies. Succeeding chapters explore the properties associated with casinos and certain measures of subfairness. Concluding chapters relate the scope of the gambler's problems to more general mathematical ideas, including dynamic programming, Bayesian statistics, and stochastic processes. Dover (2014) revised and updated republication of the 1976 Dover edition entitled Inequalities for Stochastic Processes. See every Dover book in print at www.doverpublications.com
Shocks and Choices - an Analysis of Incomplete Market Models
Author: Publisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
The thesis is divided into two parts: The first part deals with modelling long-range dependence in asset returns. Certain long-range dependence models, which have been suggested for financial modelling, fall outside the semimartingale set-up. We suggest Poisson shot noise processes as a skeleton of a long-range dependence model which provides an economic reasoning for long memory. We study weak convergence to a fractional Brownian motion. Whereas fractional Brownian motion allows for arbitrage, the shot noise processes themselves can be chosen arbitrage-free. As complement we also investigate shot noise processes which consist of shots with finite limits. They converge to a Brownian motion, i.e. they have the same asymptotic behaviour as compound Poisson processes. In the second part of the thesis we analyze American options and so-called "game options" in a general semimartingale setting. Game options naturally generalize American options by giving both counterparites the right to cancel the contract prematurely. Whereas in recent years various suggestions have been made how to price European-type contingent claims in incomplete markets, up to now there is only little corresponding literature dealing with American options. Pricing the latter is conceptually more involved: in addition to the uncertainty caused by the underlyings, one has to take the seller's ignorance of the buyer's exercise strategy into account. We generalize the "neutral derivative pricing" approach to American and game options which leads to unique "neutral" derivative price processes in incomplete markets. An alternative approach is "utility-based indifference pricing" which was firstly suggested by Hodges and Neuberger (1989) and which ist by now a standard concept to valuate European style derivatives in incomplete markets. We generalize this concept to American options and so-called "chooser options". It leads to a quite surprising result con.
Extended Nonparametric American Option Pricing
Author: Jamie AlcockPublisher:
ISBN:
Category :
Languages : en
Pages : 35
Book Description
A nonparametric method of pricing American options was recently developed that requires only historical underlying price data (Alcock and Carmichael, 2008). We derive an extension to this method to include conditioning information from a small number of observed option prices. This additional information improves the overall accuracy of the method and enables pricing of illiquid options in an incomplete market. We explore the statistical properties of both the original method and our extension using a series of simulation studies. The original method slightly outperforms Black-Scholes estimators and numerical estimators (Crank-Nicholson) that use historical volatility. In contrast, the extended method presented here produces significant reductions in mean pricing errors. These reductions are most dramatic for out-of-the-money options; a result that is consistent with empirical results for related entropic methodologies for pricing European options.