scholarly journals Risk‐neutral moment‐based estimation of affine option pricing models

2018 ◽  
Vol 33 (7) ◽  
pp. 1007-1025 ◽  
Author(s):  
Bruno Feunou ◽  
Cédric Okou
Keyword(s):  
Option Pricing ◽  
Pricing Models ◽  
Risk Neutral

scholarly journals GARCH Option Pricing Models and the Variance Risk Premium

2020 ◽  
Vol 13 (3) ◽  
pp. 51
Author(s):  
Wenjun Zhang ◽  
Jin E. Zhang
Keyword(s):  
Option Pricing ◽  
Risk Premium ◽  
Empirical Estimation ◽  
Pricing Models ◽  
Variance Risk Premium ◽  
Pricing Options ◽  
Volatility Index ◽  
Risk Neutral ◽  
Local Risk ◽  
Variance Risk

In this paper, we modify Duan’s (1995) local risk-neutral valuation relationship (mLRNVR) for the GARCH option-pricing models. In our mLRNVR, the conditional variances under two measures are designed to be different and the variance process is more persistent in the risk-neutral measure than in the physical one, so that one is able to capture the variance risk premium. Empirical estimation exercises show that the GARCH option-pricing models under our mLRNVR are able to price the SPX one-month variance swap rate, i.e., the CBOE Volatility Index (VIX) accurately. Our research suggests that one should use our mLRNVR when pricing options with GARCH models.

Applications of Hilfer-Prabhakar operator to option pricing financial model

2020 ◽  
Vol 23 (4) ◽  
pp. 996-1012 ◽  
Author(s):  
Živorad Tomovski ◽  
Johan L. A. Dubbeldam ◽  
Jan Korbel
Keyword(s):  
Option Pricing ◽  
Fractional Diffusion ◽  
Pricing Models ◽  
Financial Model ◽  
Series Representations ◽  
Risk Neutral

AbstractIn this paper, we focus on option pricing models based on time-fractional diffusion with generalized Hilfer-Prabhakar derivative. It is demonstrated how the option is priced for fractional cases of European vanilla option pricing models. Series representations of the pricing formulas and the risk-neutral parameter under the time-fractional diffusion are also derived.

scholarly journals Additive logistic processes in option pricing

2021 ◽  
Author(s):  
Peter Carr ◽  
Lorenzo Torricelli
Keyword(s):  
Option Pricing ◽  
Pricing Models ◽  
Underlying Asset ◽  
Formula One ◽  
Additive Type ◽  
Black Scholes ◽  
Minimum Price ◽  
Risk Neutral ◽  
Risk Neutral Probabilities ◽  
Security Price

AbstractIn option pricing, it is customary to first specify a stochastic underlying model and then extract valuation equations from it. However, it is possible to reverse this paradigm: starting from an arbitrage-free option valuation formula, one could derive a family of risk-neutral probabilities and a corresponding risk-neutral underlying asset process. In this paper, we start from two simple arbitrage-free valuation equations, inspired by the log-sum-exponential function and an $\ell ^{p}$ ℓ p vector norm. Such expressions lead respectively to logistic and Dagum (or “log-skew-logistic”) risk-neutral distributions for the underlying security price. We proceed to exhibit supporting martingale processes of additive type for underlying securities having as time marginals two such distributions. By construction, these processes produce closed-form valuation equations which are even simpler than those of the Bachelier and Samuelson–Black–Scholes models. Additive logistic processes provide parsimonious and simple option pricing models capturing various important stylised facts at the minimum price of a single market observable input.

Risk-Neutral and Physical Jumps in Option Pricing

2007 ◽  
Author(s):  
Jian Chen ◽  
Xiaoquan Liu ◽  
Chenghu Ma
Keyword(s):  
Option Pricing ◽  
Risk Neutral

Joint Calibration of Option Pricing Models via Particle Methods

2005 ◽  
Author(s):  
Billy Amzal ◽  
Yonathan Ebguy ◽  
Sebastien Roland
Keyword(s):  
Option Pricing ◽  
Particle Methods ◽  
Pricing Models

Specification analysis of VXX option pricing models under Lévy processes

2021 ◽  
Author(s):  
Jiling Cao ◽  
Xinfeng Ruan ◽  
Shu Su ◽  
Wenjun Zhang
Keyword(s):  
Option Pricing ◽  
Lévy Processes ◽  
Levy Processes ◽  
Pricing Models ◽  
Specification Analysis

scholarly journals Quanto Pricing beyond Black–Scholes

2021 ◽  
Vol 14 (3) ◽  
pp. 136
Author(s):  
Holger Fink ◽  
Stefan Mittnik
Keyword(s):  
Option Pricing ◽  
Goodness Of Fit ◽  
Calibration Procedure ◽  
Barrier Options ◽  
Pricing Models ◽  
Modeling Framework ◽  
Double Barrier ◽  
Parameter Stability ◽  
Comprehensive Data ◽  
Black Scholes

Since their introduction, quanto options have steadily gained popularity. Matching Black–Scholes-type pricing models and, more recently, a fat-tailed, normal tempered stable variant have been established. The objective here is to empirically assess the adequacy of quanto-option pricing models. The validation of quanto-pricing models has been a challenge so far, due to the lack of comprehensive data records of exchange-traded quanto transactions. To overcome this, we make use of exchange-traded structured products. After deriving prices for composite options in the existing modeling framework, we propose a new calibration procedure, carry out extensive analyses of parameter stability and assess the goodness of fit for plain vanilla and exotic double-barrier options.

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