A Simple Approach for Pricing Barrier Options with Time-Dependent Parameters

A Simple Approach for Pricing Barrier Options with Time-Dependent Parameters
Author: Chi-Fai Lo
Publisher:
Total Pages: 10
Release: 2007
Genre:
ISBN:

In this paper we present a simple and easy-to-use method for computing accurate estimates (in closed form) of Black-Scholes barrier option prices with time-dependent parameters. This new approach is also able to provide tight upper and lower bounds (in closed form) for the exact barrier option prices.

Valuing Double Barrier Options With Time-Dependent Parameters by Fourier Series Expansion

Valuing Double Barrier Options With Time-Dependent Parameters by Fourier Series Expansion
Author: Chi-Fai Lo
Publisher:
Total Pages: 5
Release: 2007
Genre:
ISBN:

Based upon the Fourier series expansion, we propose a simple and easy-to-use approach for computing accurate estimates of Black-Scholes double barrier option prices with time-dependent parameters. This new approach is also able to provide tight upper and lower bounds of the exact barrier option prices. Furthermore, this approach can be straightforwardly extended to the valuation of standard European options with specified moving boundaries as well.

Lie Algebraic Approach for Pricing Moving Barrier Options with Time-Dependent Parameters

Lie Algebraic Approach for Pricing Moving Barrier Options with Time-Dependent Parameters
Author: Chi-Fai Lo
Publisher:
Total Pages: 10
Release: 2007
Genre:
ISBN:

In this paper we apply the Lie-algebraic technique for the valuation of moving barrier options with time-dependent parameters. The value of the underlying asset is assumed to follow the constant elasticity of variance (CEV) process. By exploiting the dynamical symmetry of the pricing partial differential equations, the new approach enables us to derive the analytical kernels of the pricing formulae straightforwardly, and thus provides an efficient way for computing the prices of the moving barrier options. The method is also able to provide tight upper and lower bounds for the exact prices of CEV barrier options with fixed barriers.In view of the CEV model being empirically considered to be a better candidate in equity option pricing than the traditional Black-Scholes model, our new approach could facilitate more efficient comparative pricing and precise risk management in equity derivatives with barriers by incorporating term-structures of interest rates, volatility and dividend into the CEV option valuation model.

Barrier Options on Underlyings with Time-Dependent Parameters

Barrier Options on Underlyings with Time-Dependent Parameters
Author: Francesco Rapisarda
Publisher:
Total Pages: 17
Release: 2015
Genre:
ISBN:

In this paper we work out a perturbation expansion for the prices of barrier options on an underlying that follows a Black-Scholes dynamics with time-dependent parameters. It is to be considered as an extension of earlier work that provides, in a sense, a zero order approximation. Through an elegant argument we work out an easy numerical procedure by which a simple yet powerful correction to the average coefficients formulae commonly used yields prices that lie within basis points of the exact price of the option. The very important issue of Greeks bucketing is discussed as well by means of a numerical example, showing that this approach is viable for the effective management of option positions. This has important consequences on options trading particularly in the FX and credit derivatives markets.

Valuing Time-Dependent CEV Barrier Options

Valuing Time-Dependent CEV Barrier Options
Author: Chi-Fai Lo
Publisher:
Total Pages: 0
Release: 2009
Genre:
ISBN:

In this paper we have derived the analytical kernels of the pricing formulae of the CEV knockout options with time-dependent parameters for a parametric class of moving barriers. By a series of similarity transformations and changing variables, we are able to reduce the pricing equation to one which is reducible to the Bessel equation with constant parameters. These results enable us to develop a simple and efficient method for computing accurate estimates of the CEV single-barrier option prices as well as their upper and lower bounds when the model parameters are time-dependent. By means of the multi-stage approximation scheme, the upper and lower bounds for the exact barrier option prices can be efficiently improved in a systematic manner. It is also natural that this new approach can be easily applied to capture the valuation of other standard CEV options with specified moving knockout barriers. In view of the CEV model being empirically considered to be a better candidate in equity option pricing than the traditional Black-Scholes model, more comparative pricing and precise risk management in equity options can be achieved by incorporating term-structures of interest rates, volatility and dividend into the CEV option valuation model.

Credit Risk Frontiers

Credit Risk Frontiers
Author: Tomasz Bielecki
Publisher: John Wiley & Sons
Total Pages: 770
Release: 2011-02-14
Genre: Business & Economics
ISBN: 1118003837

A timely guide to understanding and implementing credit derivatives Credit derivatives are here to stay and will continue to play a role in finance in the future. But what will that role be? What issues and challenges should be addressed? And what lessons can be learned from the credit mess? Credit Risk Frontiers offers answers to these and other questions by presenting the latest research in this field and addressing important issues exposed by the financial crisis. It covers this subject from a real world perspective, tackling issues such as liquidity, poor data, and credit spreads, as well as the latest innovations in portfolio products and hedging and risk management techniques. Provides a coherent presentation of recent advances in the theory and practice of credit derivatives Takes into account the new products and risk requirements of a post financial crisis world Contains information regarding various aspects of the credit derivative market as well as cutting edge research regarding those aspects If you want to gain a better understanding of how credit derivatives can help your trading or investing endeavors, then Credit Risk Frontiers is a book you need to read.

Neural information processing

Neural information processing
Author: Irwin King
Publisher: Springer Science & Business Media
Total Pages: 1208
Release: 2006-09-22
Genre: Computers
ISBN: 3540464794

The three volume set LNCS 4232, LNCS 4233, and LNCS 4234 constitutes the refereed proceedings of the 13th International Conference on Neural Information Processing, ICONIP 2006, held in Hong Kong, China in October 2006. The 386 revised full papers presented were carefully reviewed and selected from 1175 submissions.

Counterparty Credit Risk, Collateral and Funding

Counterparty Credit Risk, Collateral and Funding
Author: Damiano Brigo
Publisher: John Wiley & Sons
Total Pages: 464
Release: 2013-03-05
Genre: Business & Economics
ISBN: 047066178X

The book’s content is focused on rigorous and advanced quantitative methods for the pricing and hedging of counterparty credit and funding risk. The new general theory that is required for this methodology is developed from scratch, leading to a consistent and comprehensive framework for counterparty credit and funding risk, inclusive of collateral, netting rules, possible debit valuation adjustments, re-hypothecation and closeout rules. The book however also looks at quite practical problems, linking particular models to particular ‘concrete’ financial situations across asset classes, including interest rates, FX, commodities, equity, credit itself, and the emerging asset class of longevity. The authors also aim to help quantitative analysts, traders, and anyone else needing to frame and price counterparty credit and funding risk, to develop a ‘feel’ for applying sophisticated mathematics and stochastic calculus to solve practical problems. The main models are illustrated from theoretical formulation to final implementation with calibration to market data, always keeping in mind the concrete questions being dealt with. The authors stress that each model is suited to different situations and products, pointing out that there does not exist a single model which is uniformly better than all the others, although the problems originated by counterparty credit and funding risk point in the direction of global valuation. Finally, proposals for restructuring counterparty credit risk, ranging from contingent credit default swaps to margin lending, are considered.

Understanding and Managing Model Risk

Understanding and Managing Model Risk
Author: Massimo Morini
Publisher: John Wiley & Sons
Total Pages: 452
Release: 2011-11-07
Genre: Business & Economics
ISBN: 0470977612

A guide to the validation and risk management of quantitative models used for pricing and hedging Whereas the majority of quantitative finance books focus on mathematics and risk management books focus on regulatory aspects, this book addresses the elements missed by this literature--the risks of the models themselves. This book starts from regulatory issues, but translates them into practical suggestions to reduce the likelihood of model losses, basing model risk and validation on market experience and on a wide range of real-world examples, with a high level of detail and precise operative indications.

Neural Information Processing

Neural Information Processing
Author: Jun Wang
Publisher: Springer
Total Pages: 1208
Release: 2006-10-03
Genre: Computers
ISBN: 3540464808

The three volume set LNCS 4232, LNCS 4233, and LNCS 4234 constitutes the refereed proceedings of the 13th International Conference on Neural Information Processing, ICONIP 2006, held in Hong Kong, China in October 2006. The 386 revised full papers presented were carefully reviewed and selected from 1175 submissions.