Efficient Quasi Bayesian Estimation Of Affine Option Pricing Models Using Risk Neutral Cumulants
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Author | : Riccardo Brignone |
Publisher | : |
Total Pages | : 0 |
Release | : 2023 |
Genre | : |
ISBN | : |
Abstract: We propose a general, accurate and fast econometric approach for the estimation of affine option pricing models. The algorithm belongs to the class of Laplace-Type Estimation (LTE) techniques and exploits Sequential Monte Carlo (SMC) methods. We employ functions of the risk-neutral cumulants given in closed form to marginalize latent states, and we address parameter estimation by designing a density tempered SMC sampler. We test our algorithm on simulated data by tackling the challenging inference problem of estimating an option pricing model which displays two stochastic volatility factors, allows for co-jumps between price and volatility, and stochastic jump intensity. Furthermore, we consider real data and estimate the model on a large panel of option prices. Numerical studies confirm the accuracy of our estimates and the superiority of the proposed approach compared to its natural benchmark
Author | : Bruno Feunou |
Publisher | : |
Total Pages | : 64 |
Release | : 2017 |
Genre | : Electronic books |
ISBN | : |
This paper provides a novel methodology for estimating option pricing models based on risk-neutral moments. We synthesize the distribution extracted from a panel of option prices and exploit linear relationships between risk-neutral cumulants and latent factors within the continuous time affine stochastic volatility framework. We find that fitting the Andersen, Fusari, and Todorov (2015b) option valuation model to risk-neutral moments captures the bulk of the information in option prices. Our estimation strategy is effective, easy to implement, and robust, as it allows for a direct linear filtering of the latent factors and a quasi-maximum likelihood estimation of model parameters. From a practical perspective, employing risk-neutral moments instead of option prices also helps circumvent several sources of numerical errors and substantially lessens the computational burden inherent in working with a large panel of option contracts.
Author | : Fred Espen Benth |
Publisher | : Springer Nature |
Total Pages | : 270 |
Release | : |
Genre | : |
ISBN | : 3031505972 |
Author | : Yannick Dillschneider |
Publisher | : |
Total Pages | : 12 |
Release | : 2019 |
Genre | : |
ISBN | : |
In this paper, we derive explicit expressions for certain joint moments of stock prices and option prices within a generic affine stochastic volatility model. Evaluation of each moment requires weighted inverse Fourier transformation of a function that is determined by the risk-neutral and real-world characteristic functions of the state vector. Explicit availability of such moment expressions allows to devise a novel GMM approach to jointly estimate real-world and risk-neutral parameters of affine stochastic volatility models using observed individual option prices. Moreover, the moment expressions may be used to include option price information into other existing moment-based estimation approaches.
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 | : Lishang Jiang |
Publisher | : World Scientific Publishing Company |
Total Pages | : 343 |
Release | : 2005-07-18 |
Genre | : Business & Economics |
ISBN | : 9813106557 |
From the unique perspective of partial differential equations (PDE), this self-contained book presents a systematic, advanced introduction to the Black-Scholes-Merton's option pricing theory.A unified approach is used to model various types of option pricing as PDE problems, to derive pricing formulas as their solutions, and to design efficient algorithms from the numerical calculation of PDEs. In particular, the qualitative and quantitative analysis of American option pricing is treated based on free boundary problems, and the implied volatility as an inverse problem is solved in the optimal control framework of parabolic equations.
Author | : Fabrice D. Rouah |
Publisher | : John Wiley & Sons |
Total Pages | : 456 |
Release | : 2012-06-15 |
Genre | : Business & Economics |
ISBN | : 1118429206 |
This comprehensive guide offers traders, quants, and students the tools and techniques for using advanced models for pricing options. The accompanying website includes data files, such as options prices, stock prices, or index prices, as well as all of the codes needed to use the option and volatility models described in the book. Praise for Option Pricing Models & Volatility Using Excel-VBA "Excel is already a great pedagogical tool for teaching option valuation and risk management. But the VBA routines in this book elevate Excel to an industrial-strength financial engineering toolbox. I have no doubt that it will become hugely successful as a reference for option traders and risk managers." —Peter Christoffersen, Associate Professor of Finance, Desautels Faculty of Management, McGill University "This book is filled with methodology and techniques on how to implement option pricing and volatility models in VBA. The book takes an in-depth look into how to implement the Heston and Heston and Nandi models and includes an entire chapter on parameter estimation, but this is just the tip of the iceberg. Everyone interested in derivatives should have this book in their personal library." —Espen Gaarder Haug, option trader, philosopher, and author of Derivatives Models on Models "I am impressed. This is an important book because it is the first book to cover the modern generation of option models, including stochastic volatility and GARCH." —Steven L. Heston, Assistant Professor of Finance, R.H. Smith School of Business, University of Maryland
Author | : Evgenii Vladimirov (Ph. D.) |
Publisher | : |
Total Pages | : 0 |
Release | : 2024 |
Genre | : |
ISBN | : 9789036107358 |
"This dissertation is a collection of three essays that delve into the econometrics of option pricing. The primary objective of these essays is to develop and deploy diverse econometric techniques that enable the accurate extraction of valuable information embedded in option prices. Chapter 2 investigates jump contagion between international stock markets using options data. It introduces a multivariate option pricing model that assesses the contagious effects of market shocks. Chapter 3 tackles the challenge of estimating continuous-time option pricing models. It proposes a new filtering and estimation method for affine jump-diffusion models, enhancing computational efficiency and implementation ease. Finally, Chapter 4 develops a unified framework for non-parametric estimation of risk-neutral densities, option prices, and option sensitivities."--
Author | : Lishang Jiang |
Publisher | : World Scientific |
Total Pages | : 344 |
Release | : 2005 |
Genre | : Science |
ISBN | : 9812563695 |
From the perspective of partial differential equations (PDE), this book introduces the Black-Scholes-Merton's option pricing theory. A unified approach is used to model various types of option pricing as PDE problems, to derive pricing formulas as their solutions, and to design efficient algorithms from the numerical calculation of PDEs.
Author | : Mikhail Chernov |
Publisher | : |
Total Pages | : |
Release | : 2012 |
Genre | : |
ISBN | : |
The paper complements the reviews on the stochastic volatility models and option pricing. We discuss recent advances in modeling and estimation techniques which allow to investigate models with latent factors and non-unique risk-neutral probability measures. The issues related to the optimal data utilization and volatility filtering are highlighted. We also discuss some of the future research in this area.