Specification Analysis of Option Pricing Models Based on Time-Changed Levy Processes PDF Download

Author: Jing-Zhi Huang
Publisher:
ISBN:
Category :
Languages : en
Pages : 48

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Book Description
We analyze the specifications of option pricing models based on time-changed Levy processes. We classify option pricing models based on the sucture of the jump component in the underlying return process, the source of stochastic volatility, and the specification of the volatility process itself. Our estimation of a variety of model specifications indicates that to better capture the behavior of the Samp;P 500 index options, we must incorporate a high frequency jump component in the return process and generate stochastic volatilities from two different sources, the jump component and the diffusion component.

Author: Peter Carr
Publisher:
ISBN:
Category :
Languages : en
Pages : 35

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Book Description
We apply stochastic time change to Levy processes to generate a wide variety of tractable option pricing models. In particular, we prove a fundamental theorem that transforms the characteristic function of the time-changed Levy process into the Laplace transform of the stochastic time under appropriate measure change. We extend the traditional measure theory into the complex domain and define the measure change by a class of complex valued exponential martingales. We provide extensive examples to illustrate its applications and its link to existing models in the literature.

Author: Yoshio Miyahara
Publisher: World Scientific
ISBN: 1848163487
Category : Electronic books
Languages : en
Pages : 200

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Book Description
This volume offers the reader practical methods to compute the option prices in the incomplete asset markets. The [GLP & MEMM] pricing models are clearly introduced, and the properties of these models are discussed in great detail. It is shown that the geometric L(r)vy process (GLP) is a typical example of the incomplete market, and that the MEMM (minimal entropy martingale measure) is an extremely powerful pricing measure. This volume also presents the calibration procedure of the [GLP \& MEMM] model that has been widely used in the application of practical problem

Author: Andreas Kyprianou
Publisher: John Wiley & Sons
ISBN: 0470017201
Category : Business & Economics
Languages : en
Pages : 344

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Book Description
Since around the turn of the millennium there has been a general acceptance that one of the more practical improvements one may make in the light of the shortfalls of the classical Black-Scholes model is to replace the underlying source of randomness, a Brownian motion, by a Lévy process. Working with Lévy processes allows one to capture desirable distributional characteristics in the stock returns. In addition, recent work on Lévy processes has led to the understanding of many probabilistic and analytical properties, which make the processes attractive as mathematical tools. At the same time, exotic derivatives are gaining increasing importance as financial instruments and are traded nowadays in large quantities in OTC markets. The current volume is a compendium of chapters, each of which consists of discursive review and recent research on the topic of exotic option pricing and advanced Lévy markets, written by leading scientists in this field. In recent years, Lévy processes have leapt to the fore as a tractable mechanism for modeling asset returns. Exotic option values are especially sensitive to an accurate portrayal of these dynamics. This comprehensive volume provides a valuable service for financial researchers everywhere by assembling key contributions from the world's leading researchers in the field. Peter Carr, Head of Quantitative Finance, Bloomberg LP. This book provides a front-row seat to the hottest new field in modern finance: options pricing in turbulent markets. The old models have failed, as many a professional investor can sadly attest. So many of the brightest minds in mathematical finance across the globe are now in search of new, more accurate models. Here, in one volume, is a comprehensive selection of this cutting-edge research. Richard L. Hudson, former Managing Editor of The Wall Street Journal Europe, and co-author with Benoit B. Mandelbrot of The (Mis)Behaviour of Markets: A Fractal View of Risk, Ruin and Reward

Author: Christophe Chorro
Publisher: Springer
ISBN: 3662450372
Category : Business & Economics
Languages : en
Pages : 202

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Book Description
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.

Author:
Publisher: Allied Publishers
ISBN: 9788177648416
Category :
Languages : en
Pages : 292

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Book Description

Author: John R. Birge
Publisher: Elsevier
ISBN: 9780080553252
Category : Business & Economics
Languages : en
Pages : 1026

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Book Description
The remarkable growth of financial markets over the past decades has been accompanied by an equally remarkable explosion in financial engineering, the interdisciplinary field focusing on applications of mathematical and statistical modeling and computational technology to problems in the financial services industry. The goals of financial engineering research are to develop empirically realistic stochastic models describing dynamics of financial risk variables, such as asset prices, foreign exchange rates, and interest rates, and to develop analytical, computational and statistical methods and tools to implement the models and employ them to design and evaluate financial products and processes to manage risk and to meet financial goals. This handbook describes the latest developments in this rapidly evolving field in the areas of modeling and pricing financial derivatives, building models of interest rates and credit risk, pricing and hedging in incomplete markets, risk management, and portfolio optimization. Leading researchers in each of these areas provide their perspective on the state of the art in terms of analysis, computation, and practical relevance. The authors describe essential results to date, fundamental methods and tools, as well as new views of the existing literature, opportunities, and challenges for future research.

Author: Ming Ji
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Book Description
There are a number of recent models that extend the Black and Scholes (1973) model by considering stochastic volatility and/or jumps, and appear to show good empirical performance. In this paper we consider some of the most successful models, all of them belonging to the class of Levy processes, and further study their empirical performance; in particular we consider their pricing performance for American options and their performance in terms of their put-call robustness; we find that their performance is good on the call side, but their put-call robustness gets lower scores than Black and Scholes (1973) with the possible exception of Carr, Geman, Madan and Yor (2002); we interpret our results as evidence of overfitting.

Author: Jian Chen
Publisher: Springer
ISBN: 9811074283
Category : Business & Economics
Languages : en
Pages : 163

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Book Description
This book mainly addresses the general equilibrium asset pricing method in two aspects: option pricing and variance risk premium. First, volatility smile and smirk is the famous puzzle in option pricing. Different from no arbitrage method, this book applies the general equilibrium approach in explaining the puzzle. In the presence of jump, investors impose more weights on the jump risk than the volatility risk, and as a result, investors require more jump risk premium which generates a pronounced volatility smirk. Second, based on the general equilibrium framework, this book proposes variance risk premium and empirically tests its predictive power for international stock market returns.

Author: Matheus R. Grasselli
Publisher: World Scientific
ISBN: 9814407887
Category : Business & Economics
Languages : en
Pages : 598

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Book Description
This outstanding collection of articles includes papers presented at the Fields Institute, Toronto, as part of the Thematic Program in Quantitative Finance that took place in the first six months of the year 2010. The scope of the volume in very broad, including papers on foundational issues in mathematical finance, papers on computational finance, and papers on derivatives and risk management. Many of the articles contain path-breaking insights that are relevant to the developing new order of post-crisis financial risk management.