scholarly journals Option Pricing Incorporating Factor Dynamics in Complete Markets

2020 ◽  
Vol 13 (12) ◽  
pp. 321
Author(s):  
Yuan Hu ◽  
Abootaleb Shirvani ◽  
W. Brent Lindquist ◽  
Frank J. Fabozzi ◽  
Svetlozar T. Rachev
Keyword(s):  
Option Pricing ◽  
Financial Market ◽  
Stock Price ◽  
Influencing Factor ◽  
Pricing Model ◽  
Complete Markets ◽  
Forward Contracts ◽  
Short Sellers ◽  
Option Pricing Model ◽  
Arbitrage Strategy

Using the Donsker–Prokhorov invariance principle, we extend the Kim–Stoyanov–Rachev–Fabozzi option pricing model to allow for variably-spaced trading instances, an important consideration for short-sellers of options. Applying the Cherny–Shiryaev–Yor invariance principles, we formulate a new binomial path-dependent pricing model for discrete- and continuous-time complete markets where the stock price dynamics depends on the log-return dynamics of a market influencing factor. In the discrete case, we extend the results of this new approach to a financial market with informed traders employing a statistical arbitrage strategy involving trading of forward contracts. Our findings are illustrated with numerical examples employing US financial market data. Our work provides further support for the conclusion that any option pricing model must preserve valuable information on the instantaneous mean log-return, the probability of the stock’s upturn movement (per trading interval), and other market microstructure features.

scholarly journals Good Volatility, Bad Volatility, and Option Pricing

2018 ◽  
Vol 54 (2) ◽  
pp. 695-727 ◽  
Author(s):  
Bruno Feunou ◽  
Cédric Okou
Keyword(s):  
Option Pricing ◽  
Stock Price ◽  
Asset Price ◽  
Jump Diffusion ◽  
Quadratic Variation ◽  
Pricing Model ◽  
Economic Gain ◽  
Underlying Asset ◽  
Model Free ◽  
Option Pricing Model

Advances in variance analysis permit the splitting of the total quadratic variation of a jump-diffusion process into upside and downside components. Recent studies establish that this decomposition enhances volatility predictions and highlight the upside/downside variance spread as a driver of the asymmetry in stock price distributions. To appraise the economic gain of this decomposition, we design a new and flexible option pricing model in which the underlying asset price exhibits distinct upside and downside semivariance dynamics driven by the model-free proxies of the variances. The new model outperforms common benchmarks, especially the alternative that splits the quadratic variation into diffusive and jump components.

Predicting the stock price of frontier markets using machine learning and modified Black–Scholes Option pricing model

2020 ◽  
Vol 555 ◽  
pp. 124444 ◽  
Author(s):  
Reaz Chowdhury ◽  
M.R.C. Mahdy ◽  
Tanisha Nourin Alam ◽  
Golam Dastegir Al Quaderi ◽  
M. Arifur Rahman
Keyword(s):  
Machine Learning ◽  
Option Pricing ◽  
Stock Price ◽  
Pricing Model ◽  
Black Scholes ◽  
Option Pricing Model

scholarly journals Valuing Coca-Cola And PepsiCo Options Using The Black-Scholes Option Pricing Model And Data Downloads From The Internet

2012 ◽  
Vol 8 (6) ◽  
pp. 559-564
Author(s):  
John C. Gardner ◽  
Carl B. McGowan Jr
Keyword(s):  
Option Pricing ◽  
Stock Price ◽  
Option Price ◽  
Option Prices ◽  
Pricing Model ◽  
Black Scholes ◽  
Option Pricing Model ◽  
Risk Free Rate ◽  
Daily Returns ◽  
Free Rate

In this paper, we demonstrate how to collect the data and compute the actual value of Black-Scholes Option Pricing Model call option prices for Coca-Cola and PepsiCo.The data for the current stock price and option price are taken from Yahoo Finance and the daily returns variance is computed from daily prices.The time to maturity is computed as the number of days remaining for the stock option.The risk-free rate is obtained from the U.S. Treasury website.

scholarly journals Preemption of compliance costs and the voluntary adoption of SFAS No. 123(R)

2014 ◽  
Vol 12 (1) ◽  
pp. 2-20
Author(s):  
Ahmed Ebrahim ◽  
Bruce Bradford
Keyword(s):  
Option Pricing ◽  
Stock Price ◽  
Price Volatility ◽  
Stock Option ◽  
Pricing Model ◽  
Compliance Cost ◽  
Compliance Costs ◽  
Content Type ◽  
Option Pricing Model ◽  
Voluntary Adoption

Purpose – This paper aims to study a preemption proposition for the compliance costs associated with stock option expensing under SFAS 123(R) by examining whether early adopters used their discretion over option pricing model inputs to mitigate the adoption effect. Design/methodology/approach – The paper uses a matched sample approach of firms that voluntarily adopted stock option expensing during the 2002-2004 period and similar firms that waited until the mandatory expensing. The paper empirically examines some determinants of voluntary adoption, and the changes in option pricing model inputs during the period leading to mandatory expensing. Findings – The paper reports evidence that voluntary adopters of stock option expensing during the 2002-2004 period have used the period leading to mandatory expensing to preempt its compliance cost effect. The authors exercised their discretion by decreasing estimates for stock price volatility and time-to-maturity to preempt or minimize the reduction in earnings before mandatory adoption date. Originality/value – Results of this paper are useful to accounting regulators in understanding the reaction of financial statement preparers to deliberations, effective dates and voluntary early adoption terms of the accounting standards setting process.

Research on Option Pricing Model under Uncertainty

2014 ◽  
Vol 513-517 ◽  
pp. 3156-3159
Author(s):  
Kun Long Zhang ◽  
Li Xia Song
Keyword(s):  
Empirical Study ◽  
Option Pricing ◽  
Financial Market ◽  
Price Change ◽  
Asset Price ◽  
Pricing Model ◽  
Pricing Models ◽  
Uncertain Environments ◽  
Option Pricing Model ◽  
Behavior Choice

In the real financial market, there are always other uncertain phenomena, such as fuzzy phenomenon, random phenomenon. Along with empirical study increasing investigator discovered that this kind of uncertainty affects policy-maker's behavior choice and the asset price change. Researcher pay more and more attention to the problems on the option pricing under in uncertain environments, Therefore, the paper shows that options can be valued successfully in uncertain environments, some option pricing models are established, the corresponding algorithm is designed to solve these models.

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 Shariah Issue of Warrant Contract: Empirical Evidence from Warrant Mispricing in Malaysia Market

2015 ◽  
Vol 1 (1) ◽  
pp. 041
Author(s):  
Ibnu Qizam ◽  
Misnen Ardiansyah ◽  
Razali Haron
Keyword(s):  
Regression Analysis ◽  
Option Pricing ◽  
Empirical Evidence ◽  
Stock Price ◽  
Panel Regression ◽  
Pricing Model ◽  
Black Scholes ◽  
Option Pricing Model

The objective of this paper is to analyze the gharar issue of warrant by presenting the empirical evidence of warrant mispricing in Malaysia's market (moneyness and mispricing) and its determinant. The Black Scholes Option Pricing Model (BSOPM) will be used to detect mispricing in a warrant's contract. In addition panel regression will be performed to analyze the determinant if said warrant is mispriced. The result shows that in majority, mispricing happens in warrant, either by Out the Money, or In the Money. Panel regression analysis finds that Stock price, klibor, and maturity are positive and are significant variables to the mispricing of a warrant. Finally, with the use of a warrant mispricing model, this research concludes that there is gharar issue in warrant contract.

An analytical approximation for the GARCH option pricing model

1999 ◽  
Vol 2 (4) ◽  
pp. 75-116 ◽  
Author(s):  
Jin-Chuan Duan ◽  
Geneviève Gauthier ◽  
Jean-Guy Simonato
Keyword(s):  
Option Pricing ◽  
Analytical Approximation ◽  
Pricing Model ◽  
Option Pricing Model
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