Comparison of European Option Pricing Models at Multiple Periods

2021 ◽  
pp. 149-166
Author(s):  
Amir Ahmad Dar ◽  
N. Anuradha ◽  
Ziadi Nihel
Keyword(s):  
Option Pricing ◽  
Graphical Representation ◽  
European Option ◽  
Pricing Models ◽  
European Option Pricing ◽  
Black Scholes Model ◽  
Time Period ◽  
Black Scholes ◽  
Option Pricing Model ◽  
Anderson Darling

The point of this chapter is to think about the correlation of two well-known European option pricing models – Black Scholes Model and Binomial Option Pricing Model. The above two models not statistically significant at one period. In this examination, it is shown how the above two European models are statistically significant when the time period increases. The independent paired t-test is utilized with the end goal to demonstrate that they are statistically significant to vary from one another at higher time period and the Anderson Darling test being used for the normality test. The Minitab and Excel programming has been utilized for graphical representation and the hypothesis testing.

On the Black-Scholes European Option Pricing Model Robustness and Generality

2008 ◽  
Author(s):  
Hellinton Hatsuo Takada ◽  
José de Oliveira Siqueira ◽  
Marcelo de Souza Lauretto ◽  
Carlos Alberto de Bragança Pereira ◽  
Julio Michael Stern
Keyword(s):  
Option Pricing ◽  
Pricing Model ◽  
European Option ◽  
European Option Pricing ◽  
Black Scholes ◽  
Option Pricing Model ◽  
Model Robustness

scholarly journals Interval Pricing Study of Deposit Insurance in China

2020 ◽  
Vol 2020 ◽  
pp. 1-10
Author(s):  
Sulin Wu ◽  
Shenggang Yang ◽  
Yifan Wu ◽  
Sangzhi Zhu
Keyword(s):  
Option Pricing ◽  
Deposit Insurance ◽  
Hunan Province ◽  
Pricing Model ◽  
European Option ◽  
Intuitionistic Fuzzy Numbers ◽  
European Option Pricing ◽  
Asset Value ◽  
Black Scholes ◽  
Option Pricing Model

This paper first proposes a European option pricing method for deposit insurance based on triangular intuitionistic fuzzy numbers. In the proposed method, we take into account the randomness and fuzziness of bank asset value simultaneously, and hence, the method can adequately reflect the high uncertainty of bank asset value. This method fuzzifies the value of bank asset, resubmits it into the original deposit insurance option pricing model as a fuzzy random variable, and then gives an analytic formula of deposit insurance rates using a risk-neutral method. After this, we have also conducted a numerical analysis. In specific, we have obtained the premium interval and presented the static analysis of key parameters. Finally, seven small- and middle-sized banks in Hunan Province in China are used as examples to validate the proposed interval pricing model. The Black-Scholes option pricing model and Yoshida’s triangular fuzzy model are also employed for comparison. The research results show that the interval rates obtained from the proposed European option pricing method for deposit insurance can better reflect the uncertainty of bank asset evaluation than the fixed rates obtained from the Black-Scholes option pricing model. Moreover, the model proposed in this paper is also superior to Yoshida’s model in practice.

scholarly journals Empirical Performance of Black-Scholes and GARCH Option Pricing Models during Turbulent Times: The Indian Evidence

2016 ◽  
Vol 8 (3) ◽  
pp. 123
Author(s):  
Aparna Bhat ◽  
Kirti Arekar
Keyword(s):  
Option Pricing ◽  
Closed Form Solution ◽  
Time Varying ◽  
Pricing Model ◽  
Currency Options ◽  
Pricing Models ◽  
Pricing Options ◽  
Volatility Model ◽  
Black Scholes ◽  
Option Pricing Model

Exchange-traded currency options are a recent innovation in the Indian financial market and their pricing is as yet unexplored. The objective of this research paper is to empirically compare the pricing performance of two well-known option pricing models – the Black-Scholes-Merton Option Pricing Model (BSM) and Duan’s NGARCH option pricing model – for pricing exchange-traded currency options on the US dollar-Indian rupee during a recent turbulent period. The BSM is known to systematically misprice options on the same underlying asset but with different strike prices and maturities resulting in the phenomenon of the ‘volatility smile’. This bias of the BSM results from its assumption of a constant volatility over the option’s life. The NGARCH option pricing model developed by Duan is an attempt to incorporate time-varying volatility in pricing options. It is a deterministic volatility model which has no closed-form solution and therefore requires numerical techniques for evaluation. In this paper we have compared the pricing performance and examined the pricing bias of both models during a recent period of volatility in the Indian foreign exchange market. Contrary to our expectations the pricing performance of the more sophisticated NGARCH pricing model is inferior to that of the relatively simple BSM model. However orthogonality tests demonstrate that the NGARCH model is free of the strike price and maturity biases associated with the BSM. We conclude that the deterministic BSM does a better job of pricing options than the more advanced time-varying volatility model based on GARCH.

scholarly journals Option Pricing Based on Modified Advection-Dispersion Equation: Stochastic Representation and Applications

2020 ◽  
Vol 2020 ◽  
pp. 1-8 ◽  
Author(s):  
Longjin Lv ◽  
Luna Wang
Keyword(s):  
Brownian Motion ◽  
Option Pricing ◽  
Dispersion Equation ◽  
Mean Square Displacement ◽  
Mean Square ◽  
European Option ◽  
Stochastic Representation ◽  
Pricing Models ◽  
Advection Dispersion ◽  
Black Scholes

In this paper, we first investigate the stochastic representation of the modified advection-dispersion equation, which is proved to be a subordinated stochastic process. Taking advantage of this result, we get the analytical solution and mean square displacement for the equation. Then, applying the subordinated Brownian motion into the option pricing problem, we obtain the closed-form pricing formula for the European option, when the underlying of the option contract is supposed to be driven by the subordinated geometric Brownian motion. At last, we compare the obtained option pricing models with the classical Black–Scholes ones.

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