scholarly journals Fast numerical simulation of a new time-space fractional option pricing model governing European call option

2018 ◽  
Vol 339 ◽  
pp. 186-198 ◽  
Author(s):  
H. Zhang ◽  
F. Liu ◽  
S. Chen ◽  
V. Anh ◽  
J. Chen
Keyword(s):  
Numerical Simulation ◽  
Option Pricing ◽  
Call Option ◽  
Pricing Model ◽  
European Call Option ◽  
Time Space ◽  
Option Pricing Model ◽  
New Time

scholarly journals Evaluation of the Reverse Mortgage Option in Korea: A Long Straddle Perspective

2020 ◽  
Vol 8 (3) ◽  
pp. 55
Author(s):  
Kyung Jin Choi ◽  
Byungkwon Lim ◽  
Jaehwan Park
Keyword(s):  
Option Pricing ◽  
House Price ◽  
Analytical Models ◽  
Call Option ◽  
Option Value ◽  
Pricing Model ◽  
Reverse Mortgage ◽  
Option Pricing Model ◽  
Reverse Mortgages ◽  
Key Variables

This study explored the option value embedded in a reverse mortgage in Korea through an empirical analysis, using the Black–Scholes option-pricing model. The value of a reverse mortgage is affected by the variation in house prices. However, older homeowners using reverse mortgages are able to choose this option due to the unique characteristics of reverse mortgages, such as non-recourse clauses or being able to redeem the loan. This paper found the following results. First, the call option value is 5.8% of the house price at the age of 60, under the assumption of a KRW three hundred million house value, while the put option value is only 2.0%. Contrary to what it is at sixty years of age, only the call option value will remain when the homeowner reaches the age of 80. Second, this article analyzed the sensitivity of the key variables of real-option analytical models, such as the change of the exercise price, the change of the risk-free rate, volatility, and maturity, on the option value of a reverse mortgage. The sensitivity results of the key variables supported economic rationales for the option pricing model.

scholarly journals A fuzzy jump-diffusion option pricing model based on Merton formula

2021 ◽  
Author(s):  
Satrajit Mandal ◽  
Sujoy Bhattacharya
Keyword(s):  
Option Pricing ◽  
Stock Price ◽  
Search Algorithm ◽  
Option Price ◽  
Jump Diffusion ◽  
Call Option ◽  
Pricing Model ◽  
Model Based ◽  
Option Pricing Model ◽  
Jump Diffusion Model

Abstract This paper proposes a fuzzy jump-diffusion option pricing model based on Merton's normal jump-diffusion price dynamics. The logarithm of the stock price is assumed to be a Gaussian fuzzy number and the diffusion and jump parameters of the Merton model are assumed to be triangular fuzzy numbers to model the impreciseness which occur due to the variation in financial markets. Using these assumptions, a fuzzy formula for a European call option has been proposed. Given any value of the option price, its belief degree is obtained by using the bisection search algorithm. The fuzzy call option prices have been defuzzified and it has been found that the fuzzy jump-diffusion model outperforms Wu's fuzzy Black- Scholes model. This is one of the first studies where the impreciseness of the stock price and input parameters has been modelled taking into account occasional large jumps in stock price trajectory and thereby proposing a fuzzy option pricing model.

scholarly journals Default Risk and Cross Section of Returns

2019 ◽  
Vol 12 (2) ◽  
pp. 95 ◽  
Author(s):  
Nusret Cakici ◽  
Sris Chatterjee ◽  
Ren-Raw Chen
Keyword(s):  
Option Pricing ◽  
Stock Returns ◽  
Default Risk ◽  
Small Firms ◽  
Pricing Model ◽  
Market Effects ◽  
Value Stocks ◽  
European Call Option ◽  
Option Pricing Model ◽  
Growth Stocks

Prior research uses the basic one-period European call-option pricing model to compute default measures for individual firms and concludes that both the size and book-to-market effects are related to default risk. For example, small firms earn higher return than big firms only if they have higher default risk and value stocks earn higher returns than growth stocks if their default risk is high. In this paper we use a more advanced compound option pricing model for the computation of default risk and provide a more exhaustive test of stock returns using univariate and double-sorted portfolios. The results show that long/short hedge portfolios based on Geske measures of default risk produce significantly larger return differentials than Merton’s measure of default risk. The paper provides new evidence that mediates between the rational and behavioral explanations of value premium.

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