Testing Option Pricing Models
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Author | : David S. Bates |
Publisher | : |
Total Pages | : 75 |
Release | : 2010 |
Genre | : |
ISBN | : |
This paper discusses the commonly used methods for testing option pricing models, including the Black-Scholes, constant elasticity of variance, stochastic volatility, and jump-diffusion models. Since options are derivative assets, the central empirical issue is whether the distributions implicit in option prices are consistent with the time series properties of the underlying asset prices. Three relevant aspects of consistency are discussed, corresponding to whether time series-based inferences and option prices agree with respect to volatility, changes in volatility, and higher moments. The paper surveys the extensive empirical literature on stock options, options on stock indexes and stock index futures, and options on currencies and currency futures.
Author | : David Scott Bates |
Publisher | : |
Total Pages | : 72 |
Release | : 1995 |
Genre | : Options (Finance) |
ISBN | : |
This paper discusses the commonly used methods for testing option pricing models, including the Black-Scholes, constant elasticity of variance, stochastic volatility, and jump-diffusion models. Since options are derivative assets, the central empirical issue is whether the distributions implicit in option prices are consistent with the time series properties of the underlying asset prices. Three relevant aspects of consistency are discussed, corresponding to whether time series-based inferences and option prices agree with respect to volatility, changes in volatility, and higher moments. The paper surveys the extensive empirical literature on stock options, options on stock indexes and stock index futures, and options on currencies and currency futures
Author | : Jeffrey Owen Katz |
Publisher | : McGraw Hill Professional |
Total Pages | : 449 |
Release | : 2005-03-21 |
Genre | : Business & Economics |
ISBN | : 0071454705 |
Advanced Option Pricing Models details specific conditions under which current option pricing models fail to provide accurate price estimates and then shows option traders how to construct improved models for better pricing in a wider range of market conditions. Model-building steps cover options pricing under conditional or marginal distributions, using polynomial approximations and “curve fitting,” and compensating for mean reversion. The authors also develop effective prototype models that can be put to immediate use, with real-time examples of the models in action.
Author | : Mihir Bhattacharya |
Publisher | : |
Total Pages | : 188 |
Release | : 1981 |
Genre | : |
ISBN | : |
Author | : Olesia Verchenko |
Publisher | : |
Total Pages | : |
Release | : 2008 |
Genre | : |
ISBN | : |
Author | : Hyoung-jin Park |
Publisher | : |
Total Pages | : 30 |
Release | : 2008 |
Genre | : |
ISBN | : |
We examine the effect of transaction costs on implied volatility structure, parameter estimation, and hedging. Using simulations, we document that: (1) Transaction costs can generate the volatility smile phenomena even in the Black-Scholes economy. Especially, volatility smile effect is very strong for short-term options and it disappears as the maturity of options becomes longer. (2) Transaction costs cannot reject the true model falsely. All the parameter values that are supposed to be zero are not statistically significant even in the presence of transaction costs. (3) In hedging, the Black-Scholes model performs better than any other model in any case. This may result from the parameter instability of the cross-sectional estimation method.
Author | : Sichong Chen |
Publisher | : |
Total Pages | : |
Release | : 2004 |
Genre | : |
ISBN | : |
Author | : Giovanni Barone-Adesi |
Publisher | : |
Total Pages | : 32 |
Release | : 1985 |
Genre | : Options (Finance) |
ISBN | : |
Author | : Christophe Chorro |
Publisher | : Springer |
Total Pages | : 202 |
Release | : 2014-12-04 |
Genre | : Business & Economics |
ISBN | : 3662450372 |
The current world financial scene indicates at an intertwined and interdependent relationship between financial market activity and economic health. This book explains how the economic messages delivered by the dynamic evolution of financial asset returns are strongly related to option prices. The Black Scholes framework is introduced and by underlining its shortcomings, an alternative approach is presented that has emerged over the past ten years of academic research, an approach that is much more grounded on a realistic statistical analysis of data rather than on ad hoc tractable continuous time option pricing models. The reader then learns what it takes to understand and implement these option pricing models based on time series analysis in a self-contained way. The discussion covers modeling choices available to the quantitative analyst, as well as the tools to decide upon a particular model based on the historical datasets of financial returns. The reader is then guided into numerical deduction of option prices from these models and illustrations with real examples are used to reflect the accuracy of the approach using datasets of options on equity indices.
Author | : Sheldon Natenberg |
Publisher | : John Wiley & Sons |
Total Pages | : 121 |
Release | : 2012-09-27 |
Genre | : Business & Economics |
ISBN | : 1118538064 |
Now you can learn directly from Sheldon Natenberg! In this unique multimedia course, Natenberg will explain the most popular option pricing strategies. Follow along as this trading legend walks you through the calculations and key elements of option volatility in this video, companion book, and self-test combination. Get The Full Impact Of Every Word Of This Traders' Hall Of Fame Presentation. You'll learn: Implied volatility and how it is calculated, so you can find the best positions; What assumptions are driving an options pricing model to be ahead of the trade; Proven techniques for comparing price to value to increase your number of winning trade; How you can use probability to estimate option prices to increase trading income. Spending time with a trading legend is usually a dream for most traders, but this is your opportunity to get the inside tactics of one of the most sought-after educators in options. With the personal touch of his presentation, Natenberg's educational tool gives all traders, beginner to advanced, access to the powerful insights that can bring ongoing option trading success.