european options
Recently Published Documents





2022 ◽  
Vol 402 ◽  
pp. 113790
Rui M.P. Almeida ◽  
Teófilo D. Chihaluca ◽  
José C.M. Duque

2022 ◽  
Vol 2022 ◽  
pp. 1-8
Longjin Lv ◽  
Changjuan Zheng ◽  
Luna Wang

This paper aims to study option pricing problem under the subordinated Brownian motion. Firstly, we prove that the subordinated Brownian motion controlled by the fractional diffusion equation has many financial properties, such as self-similarity, leptokurtic, and long memory, which indicate that the fractional calculus can describe the financial data well. Then, we investigate the option pricing under the assumption that the stock price is driven by the subordinated Brownian motion. The closed-form pricing formula for European options is derived. In the comparison with the classic Black–Sholes model, we find the option prices become higher, and the “volatility smiles” phenomenon happens in the proposed model. Finally, an empirical analysis is performed to show the validity of these results.

Luiz Vitiello ◽  
Ser-Huang Poon

AbstractBased on a standard general equilibrium economy, we develop a framework for pricing European options where the risk aversion parameter is state dependent, and aggregate wealth and the underlying asset have a bivariate transformed-normal distribution. Our results show that the volatility and the skewness of the risk aversion parameter change the slope of the pricing kernel, and that, as the volatility of the risk aversion parameter increases, the (Black and Scholes) implied volatility shifts upwards but its shape remains the same, which implies that the volatility of the risk aversion parameter does not change the shape of the risk neutral distribution. Also, we demonstrate that the pricing kernel may become non-monotonic for high levels of volatility and low levels of skewness of the risk aversion parameter. An empirical example shows that the estimated volatility of the risk aversion parameter tends to be low in periods of high market volatility and vice-versa.

2022 ◽  
Vol 413 ◽  
pp. 126647
Iñigo Arregui ◽  
Roberta Simonella ◽  
Carlos Vázquez

2022 ◽  
Carlos Alexander Grajales ◽  
Santiago Medina Hurtado ◽  
Samuel A. Mongrut

Diana Purwandari

Stock trading has a risk that can be said to be quite large due to fluctuations in stock prices. In stock trading, one alternative to reduce the amount of risk is options. The focus of this research is on European options which are financial contracts by giving the holder the right, not the obligation, to sell or buy the principal asset from the writer when it expires at a predetermined price. The Black-Scholes model is an option pricing model commonly used in the financial sector. This study aims to determine the effect of dividend distribution through the Black-Scholes model on stock prices. The effect of dividend distribution through the Black-Scholes model on stock prices results in the stock price immediately after the dividend distribution being lower than the stock price shortly before the dividend distribution

Teófilo Domingos Chihaluca

A numerical algorithm for solving a generalized Black-Scholes partial differential equation, which arises in European option pricing considering transaction costs is developed. The Crank-Nicolson method is used to discretize in the temporal direction and the Hermite cubic interpolation method to discretize in the spatial direction. The efficiency and accuracy of the proposed method are tested numerically, and the results confirm the theoretical behaviour of the solutions, which is also found to be in good agreement with the exact solution.

2021 ◽  
Vol 9 (3) ◽  
pp. 52-76
S. Smirnov ◽  
D. Sotnikov

This paper proposes a method of comparing the prices of European options, based on the use of probabilistic metrics, with respect to two models of price dynamics: Bachelier and Samuelson. In contrast to other studies on the subject, we consider two classes of options: European options with a Lipschitz continuous payout function and European options with a bounded payout function. For these classes, the following suitable probability metrics are chosen: the Fortet-Maurier metric, the total variation metric, and the Kolmogorov metric. It is proved that their computation can be reduced to computation of the Lambert in case of the Fortet-Mourier metric, and to the solution of a nonlinear equation in other cases. A statistical estimation of the model parameters in the modern oil market gives the order of magnitude of the error, including the magnitude of sensitivity of the option price, to the change in the volatility.

Sign in / Sign up

Export Citation Format

Share Document