Author: Saikat NandiPublisher:
ISBN:
Category : Hedging (Finance)
Languages : en
Pages : 48
Book Description
Pricing and Hedging Index Options Under Stochastic Volatility
Author: Saikat NandiPublisher:
ISBN:
Category : Hedging (Finance)
Languages : en
Pages : 48
Book Description
Pricing and Hedging Long-Term Options
Author: Zhiwu ChenPublisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
Recent empirical studies find that once an option pricing model has incorporated stochastic volatility, allowing interest rates to be stochastic does not improve pricing or hedging any further while adding random jumps to the modeling framework only helps the pricing of extremely short-term options but not the hedging performance. Given that only options of relatively short terms are used in existing studies, this paper addresses two related questions: Do long-term options contain different information than short-term options? If so, can long-term options better differentiate among alternative models? Our inquiry starts by first demonstrating analytically that differences among alternative models usually do not surface when applied to short term options, but do so when applied to long-term contracts. For instance, within a wide parameter range, the Arrow-Debreu state price densities implicit in different stochastic-volatility models coincide almost everywhere at the short horizon, but diverge at the long horizon. Using regular options (of less than a year to expiration) and LEAPS, both written on the Samp;P 500 index, we find that short- and long-term contracts indeed contain different information and impose distinct hurdles on any candidate option pricing model. While the data suggest that it is not as important to model stochastic interest rates or random jumps (beyond stochastic volatility) for pricing LEAPS, incorporating stochastic interest rates can nonetheless enhance hedging performance in certain cases involving long-term contracts.
Option Hedging and Valuation Under Stochastic Volatility
Author: Joshua RosenbergPublisher:
ISBN:
Category : Foreign exchange rates
Languages : en
Pages : 292
Book Description
Pricing and Hedging Exotic Options in Stochastic Volatility Models
Author: Zhanyu ChenVolatility Surface and Term Structure
Author: Kin Keung LaiPublisher: Routledge
ISBN: 1135006997
Category : Business & Economics
Languages : en
Pages : 102
Book Description
This book provides different financial models based on options to predict underlying asset price and design the risk hedging strategies. Authors of the book have made theoretical innovation to these models to enable the models to be applicable to real market. The book also introduces risk management and hedging strategies based on different criterions. These strategies provide practical guide for real option trading. This book studies the classical stochastic volatility and deterministic volatility models. For the former, the classical Heston model is integrated with volatility term structure. The correlation of Heston model is considered to be variable. For the latter, the local volatility model is improved from experience of financial practice. The improved local volatility surface is then used for price forecasting. VaR and CVaR are employed as standard criterions for risk management. The options trading strategies are also designed combining different types of options and they have been proven to be profitable in real market. This book is a combination of theory and practice. Users will find the applications of these financial models in real market to be effective and efficient.
Option Pricing Under Stochastic Volatility for S&P 500 and FTSE 100 Index Options
Author: Yueh-Neng LinA Pricing and Hedging Comparison of Parametric and Nonparametric Approaches for American Index Options
Author: Toby DaglishPublisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
This article investigates the extent to which options on the Australian Stock Price Index can be explained by parametric and nonparametric option pricing techniques. In particular, comparisons are made of out-of-sample option pricing performance and hedging performance. The dataset differs from many of those used previously in the empirical options pricing literature in that it consists of American options. In addition, a broader spectrum of techniques are considered: a spline-based nonparametric technique is considered in addition to the standard kernel techniques, while the performance of a Heston stochastic volatility model is also considered. Although some evidence is found of superior performance by nonparametric techniques for in-sample pricing, the parametric methods exhibit a markedly better ability to explain future prices and show superior hedging performance.
A Note on Hedging in ARCH and Stochastic Volatility Option Pricing Models
Author: Garcia, RenéPublisher: Montréal : CIRANO
ISBN:
Category :
Languages : en
Pages : 11
Book Description
Pricing and Hedging European Options Under Jumps and Stochastic Volatility
Author: Bo LaursenEstimating a Stochastic Volatility Model for DAX-Index Options
Author: Publisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
The paper examines alternative strategies for pricing and hedging options on German DAX-index. To this purpose an affine stochastic volatility model is estimated directly on objective probability system through a three step approach. Errors obtained by the implementation of the stochastic volatility model and Black and Scholes with different historical and implied volatility measures are compared and the performance is evaluated in terms of out-of-sample pricing and hedging. The results for DAX-index options market support the estimation on the affine stochastic volatility model in pricing as well as in hedging procedures.