Alternative Formulas to Compute Implied Standard Deviation

2009 ◽  
Vol 12 (02) ◽  
pp. 159-176 ◽  
Author(s):  
James S. Ang ◽  
Gwoduan David Jou ◽  
Tsong-Yue Lai
Keyword(s):  
Standard Deviation ◽  
Closed Form ◽  
Asset Price ◽  
Closed Form Solution ◽  
Form Solution ◽  
Call Option ◽  
Present Value ◽  
Underlying Asset ◽  
The Third ◽  
Exercise Price

We assume that the call option's value is correctly priced by Black and Scholes' option pricing model in this paper. This paper derives an exact closed-form solution for implied standard deviation under the condition that the underlying asset price equals the present value of the exercise price. The exact closed-form solution provides the true implied standard deviation and has no estimate error. This paper also develops three alternative formulas to estimate the implied standard deviation if this condition is violated. Application of the Taylor expansion on a single call option value derives the first formula. The accuracy of this formula depends on the deviation between the underlying asset price and the present value of the exercise price. Use of the Taylor formula on two call option prices with different exercise prices is used to develop the second formula, which can be used even though the underlying asset price deviates significantly from the present value of the exercise price. Extension of the second formula's approach to third options value derives the third formula. A merit of the third formula is to circumvent a required parameter used in the second formula. Simulations demonstrate that the implied standard deviations calculated by the second and third formulas provide accurate estimates of the true implied standard deviations.

A Closed-Form Solution for the Global Quadratic Hedging of Options under Geometric Gaussian Random Walks

2019 ◽  
Keyword(s):  
Closed Form ◽  
Recursive Algorithm ◽  
Closed Form Solution ◽  
Form Solution ◽  
Closed Form Expression ◽  
Problem Solution ◽  
Underlying Asset ◽  
Quadratic Hedging ◽  
Hedging Problem ◽  
The Impact

This study obtains a closed-form solution for the discrete-time global quadratic hedging problem of Schweizer (1995) applied to vanilla European options under the geometric Gaussian random walk model for the underlying asset. This extends the work of Rémillard and Rubenthaler (2013), who obtained closed-form formulas for some components of the hedging problem solution. Coefficients embedded in the closed-form expression can be computed either directly or through a recursive algorithm. The author also presents a brief sensitivity analysis to determine the impact of the underlying asset drift and the hedging portfolio rebalancing frequency on the optimal hedging capital and the initial hedge ratio.

On a Closed-Form Solution of Prandtl's System of Equations

2013 ◽  
Vol 40 (2) ◽  
pp. 106-114
Author(s):  
J. Venetis ◽  
Aimilios (Preferred name Emilios) Sideridis
Keyword(s):  
Closed Form ◽  
Closed Form Solution ◽  
Form Solution ◽  
System Of Equations

scholarly journals Geometric Average Asian Option Pricing with Paying Dividend Yield under Non-Extensive Statistical Mechanics for Time-Varying Model

Entropy ◽  
2018 ◽  
Vol 20 (11) ◽  
pp. 828 ◽  
Author(s):  
Jixia Wang ◽  
Yameng Zhang
Keyword(s):  
Statistical Mechanics ◽  
Option Pricing ◽  
Asset Price ◽  
Closed Form Solution ◽  
Real Data ◽  
Form Solution ◽  
Asian Option ◽  
Time Varying ◽  
Dividend Yield ◽  
Geometric Average

This paper is dedicated to the study of the geometric average Asian call option pricing under non-extensive statistical mechanics for a time-varying coefficient diffusion model. We employed the non-extensive Tsallis entropy distribution, which can describe the leptokurtosis and fat-tail characteristics of returns, to model the motion of the underlying asset price. Considering that economic variables change over time, we allowed the drift and diffusion terms in our model to be time-varying functions. We used the I t o ^ formula, Feynman–Kac formula, and P a d e ´ ansatz to obtain a closed-form solution of geometric average Asian option pricing with a paying dividend yield for a time-varying model. Moreover, the simulation study shows that the results obtained by our method fit the simulation data better than that of Zhao et al. From the analysis of real data, we identify the best value for q which can fit the real stock data, and the result shows that investors underestimate the risk using the Black–Scholes model compared to our model.

scholarly journals A Closed-Form Solution to Planar Feature-Based Registration of LiDAR Point Clouds

2021 ◽  
Vol 10 (7) ◽  
pp. 435
Author(s):  
Yongbo Wang ◽  
Nanshan Zheng ◽  
Zhengfu Bian
Keyword(s):  
Closed Form ◽  
Closed Form Solution ◽  
Simulated Data ◽  
Real Data ◽  
Point Clouds ◽  
Form Solution ◽  
Spatial Transformation ◽  
Dual Quaternions ◽  
Feature Based ◽  
Planar Feature

Since pairwise registration is a necessary step for the seamless fusion of point clouds from neighboring stations, a closed-form solution to planar feature-based registration of LiDAR (Light Detection and Ranging) point clouds is proposed in this paper. Based on the Plücker coordinate-based representation of linear features in three-dimensional space, a quad tuple-based representation of planar features is introduced, which makes it possible to directly determine the difference between any two planar features. Dual quaternions are employed to represent spatial transformation and operations between dual quaternions and the quad tuple-based representation of planar features are given, with which an error norm is constructed. Based on L2-norm-minimization, detailed derivations of the proposed solution are explained step by step. Two experiments were designed in which simulated data and real data were both used to verify the correctness and the feasibility of the proposed solution. With the simulated data, the calculated registration results were consistent with the pre-established parameters, which verifies the correctness of the presented solution. With the real data, the calculated registration results were consistent with the results calculated by iterative methods. Conclusions can be drawn from the two experiments: (1) The proposed solution does not require any initial estimates of the unknown parameters in advance, which assures the stability and robustness of the solution; (2) Using dual quaternions to represent spatial transformation greatly reduces the additional constraints in the estimation process.

A CLOSED-FORM PRICING FORMULA FOR EUROPEAN EXCHANGE OPTIONS WITH STOCHASTIC VOLATILITY

2021 ◽  
pp. 1-10
Author(s):  
Puneet Pasricha ◽  
Anubha Goel
Keyword(s):  
Closed Form ◽  
Stochastic Volatility ◽  
Closed Form Solution ◽  
Form Solution ◽  
Stochastic Volatility Model ◽  
Strike Price ◽  
Volatility Model ◽  
Exchange Options ◽  
Pricing Formula ◽  
Exchange Option

This article derives a closed-form pricing formula for the European exchange option in a stochastic volatility framework. Firstly, with the Feynman–Kac theorem's application, we obtain a relation between the price of the European exchange option and a European vanilla call option with unit strike price under a doubly stochastic volatility model. Then, we obtain the closed-form solution for the vanilla option using the characteristic function. A key distinguishing feature of the proposed simplified approach is that it does not require a change of numeraire in contrast with the usual methods to price exchange options. Finally, through numerical experiments, the accuracy of the newly derived formula is verified by comparing with the results obtained using Monte Carlo simulations.

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