Numerical Solution of Partial Integro-Differential Option Pricing Models with Cross Derivative Term

2016 ◽  
pp. 121-129
Author(s):  
M. Fakharany ◽  
R. Company ◽  
L. Jódar
Keyword(s):  
Option Pricing ◽  
Numerical Solution ◽  
Pricing Models ◽  
Derivative Term

scholarly journals Unconditional Positive Stable Numerical Solution of Partial Integrodifferential Option Pricing Problems

2015 ◽  
Vol 2015 ◽  
pp. 1-10
Author(s):  
M. Fakharany ◽  
R. Company ◽  
L. Jódar
Keyword(s):  
Option Pricing ◽  
Numerical Solution ◽  
Numerical Solutions ◽  
Stable Process ◽  
Integration Formula ◽  
Pricing Models ◽  
Integral Term ◽  
Pricing Problems ◽  
Stability And Consistency ◽  
Partial Integrodifferential Equation

This paper is concerned with the numerical solution of partial integrodifferential equation for option pricing models under a tempered stable process known as CGMY model. A double discretization finite difference scheme is used for the treatment of the unbounded nonlocal integral term. We also introduce in the scheme the Patankar-trick to guarantee unconditional nonnegative numerical solutions. Integration formula of open type is used in order to improve the accuracy of the approximation of the integral part. Stability and consistency are also studied. Illustrative examples are included.

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.

Implementing option-pricing models using software synthesis

1999 ◽  
Vol 1 (6) ◽  
pp. 54-64 ◽  
Author(s):  
J. Gatheral ◽  
Y. Epelbaum ◽  
Jining Han ◽  
K. Laud ◽  
O. Lubovitsky ◽  
...  
Keyword(s):  
Option Pricing ◽  
Pricing Models ◽  
Software Synthesis

Value-at-Risk and Expected Shortfall approaches for option premiums and the probability of default estimation based on ARMA models

2021 ◽  
Vol 57 (3) ◽  
pp. 126
Author(s):  
Nikolai Berzon
Keyword(s):  
Time Series ◽  
Option Pricing ◽  
Discrete Time ◽  
Value At Risk ◽  
Probability Of Default ◽  
Pricing Models ◽  
Arma Process ◽  
Underlying Asset ◽  
Black Scholes

The need to address the issue of risk management has given rise to a number of models for estimation the probability of default, as well as a special tool that allows to sell credit risk – a credit default swap (CDS). From the moment it appeared in 1994 until the crisis of 2008, that the CDS market was actively growing, and then sharply contracted. Currently, there is practically no CDS market in emerging economies (including Russia). This article is to improve the existing CDS valuation models by using discrete-time models that allow for more accurate assessment and forecasting of the selected asset dynamics, as well as new option pricing models that take into account the degree of risk acceptance by the option seller. This article is devoted to parametric discrete-time option pricing models that provide more accurate results than the traditional Black-Scholes continuous-time model. Improvement in the quality of assessment is achieved due to three factors: a more detailed consideration of the properties of the time series of the underlying asset (in particular, autocorrelation and heavy tails), the choice of the optimal number of parameters and the use of Value-at-Risk approach. As a result of the study, expressions were obtained for the premiums of European put and call options for a given level of risk under the assumption that the return on the underlying asset follows a stationary ARMA process with normal or Student's errors, as well as an expression for the credit spread under similar assumptions. The simplicity of the ARMA process underlying the model is a compromise between the complexity of model calibration and the quality of describing the dynamics of assets in the stock market. This approach allows to take into account both discreteness in asset pricing and take into account the current structure and the presence of interconnections for the time series of the asset under consideration (as opposed to the Black–Scholes model), which potentially allows better portfolio management in the stock market.

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