Download or read book Pricing and Hedging Index Options Under Stochastic Volatility written by Saikat Nandi and published by . This book was released on 1996 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Pricing and Hedging Long Term Options written by Zhiwu Chen and published by . This book was released on 2000 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent empirical studies find that once an option pricing model has incorporated stochastic volatility, allowing interest rates to be stochastic does not improve pricing or hedging any further while adding random jumps to the modeling framework only helps the pricing of extremely short-term options but not the hedging performance. Given that only options of relatively short terms are used in existing studies, this paper addresses two related questions: Do long-term options contain different information than short-term options? If so, can long-term options better differentiate among alternative models? Our inquiry starts by first demonstrating analytically that differences among alternative models usually do not surface when applied to short term options, but do so when applied to long-term contracts. For instance, within a wide parameter range, the Arrow-Debreu state price densities implicit in different stochastic-volatility models coincide almost everywhere at the short horizon, but diverge at the long horizon. Using regular options (of less than a year to expiration) and LEAPS, both written on the Samp;P 500 index, we find that short- and long-term contracts indeed contain different information and impose distinct hurdles on any candidate option pricing model. While the data suggest that it is not as important to model stochastic interest rates or random jumps (beyond stochastic volatility) for pricing LEAPS, incorporating stochastic interest rates can nonetheless enhance hedging performance in certain cases involving long-term contracts.

Download or read book Recent Developments in Mathematical Finance written by Jiongmin Yong and published by World Scientific. This book was released on 2002 with total page 286 pages. Available in PDF, EPUB and Kindle. Book excerpt: The book deals with topics such as the pricing of various contingent claims within different frameworks, risk-sensitive problems, optimal investment, defaultable term structure, etc. It also reflects on some recent developments in certain important aspects of mathematical finance.

Download or read book Option Hedging and Valuation Under Stochastic Volatility written by Joshua Rosenberg and published by . This book was released on 1996 with total page 292 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Pricing and Hedging Exotic Options in Stochastic Volatility Models written by Zhanyu Chen and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Volatility Surface and Term Structure written by Kin Keung Lai and published by Routledge. This book was released on 2013-09-11 with total page 102 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides different financial models based on options to predict underlying asset price and design the risk hedging strategies. Authors of the book have made theoretical innovation to these models to enable the models to be applicable to real market. The book also introduces risk management and hedging strategies based on different criterions. These strategies provide practical guide for real option trading. This book studies the classical stochastic volatility and deterministic volatility models. For the former, the classical Heston model is integrated with volatility term structure. The correlation of Heston model is considered to be variable. For the latter, the local volatility model is improved from experience of financial practice. The improved local volatility surface is then used for price forecasting. VaR and CVaR are employed as standard criterions for risk management. The options trading strategies are also designed combining different types of options and they have been proven to be profitable in real market. This book is a combination of theory and practice. Users will find the applications of these financial models in real market to be effective and efficient.

Download or read book A Pricing and Hedging Comparison of Parametric and Nonparametric Approaches for American Index Options written by Toby Daglish and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This article investigates the extent to which options on the Australian Stock Price Index can be explained by parametric and nonparametric option pricing techniques. In particular, comparisons are made of out-of-sample option pricing performance and hedging performance. The dataset differs from many of those used previously in the empirical options pricing literature in that it consists of American options. In addition, a broader spectrum of techniques are considered: a spline-based nonparametric technique is considered in addition to the standard kernel techniques, while the performance of a Heston stochastic volatility model is also considered. Although some evidence is found of superior performance by nonparametric techniques for in-sample pricing, the parametric methods exhibit a markedly better ability to explain future prices and show superior hedging performance.

Download or read book Option Pricing Under Stochastic Volatility for S P 500 and FTSE 100 Index Options written by Yueh-Neng Lin and published by . This book was released on 1999 with total page 379 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book A Note on Hedging in ARCH and Stochastic Volatility Option Pricing Models written by Garcia, René and published by Montréal : CIRANO. This book was released on 1997 with total page 11 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Pricing and Hedging European Options Under Jumps and Stochastic Volatility written by Bo Laursen and published by . This book was released on 2013 with total page 127 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Derivatives in Financial Markets with Stochastic Volatility written by Jean-Pierre Fouque and published by Cambridge University Press. This book was released on 2000-07-03 with total page 222 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book, first published in 2000, addresses pricing and hedging derivative securities in uncertain and changing market volatility.

Download or read book Index Option Pricing with Stochastic Volatility and the Value of Accurate written by Robert F. Engle and published by . This book was released on 1993 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Estimating a Stochastic Volatility Model for DAX Index Options written by and published by . This book was released on 2003 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper examines alternative strategies for pricing and hedging options on German DAX-index. To this purpose an affine stochastic volatility model is estimated directly on objective probability system through a three step approach. Errors obtained by the implementation of the stochastic volatility model and Black and Scholes with different historical and implied volatility measures are compared and the performance is evaluated in terms of out-of-sample pricing and hedging. The results for DAX-index options market support the estimation on the affine stochastic volatility model in pricing as well as in hedging procedures.

Download or read book Option Hedging with Stochastic Volatility written by Adam Kurpiel and published by . This book was released on 2009 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: The purpose of this paper is to analyse different implications of the stochastic behavior of asset prices volatilities for option hedging purposes. We present a simple stochastic volatility model for option pricing and illustrate its consistency with financial stylized facts. Then, assuming a stochastic volatility environment, we study the accuracy of Black and Scholes implied volatility-based hedging. More precisely, we analyse the hedging ratios biases and investigate different hedging schemes in a dynamic setting.

Download or read book Option Pricing Under Stochastic Volatility written by Dimitrios Gkamas and published by . This book was released on 2002 with total page 388 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Index option Pricing with Stochastic Volatility and the Value of Accurate Variance Forecasts written by Robert F. Engle and published by . This book was released on 1993 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: In pricing primary-market options and in making secondary markets, financial intermediaries depend on the quality of forecasts of the variance of the underlying assets. Hence, the gain from improved pricing of options would be a measure of the value of a forecast of underlying asset returns. NYSE index returns over the period of 1968-1991 are used to suggest that pricing index options of up to 90-days maturity would be more accurate when: (1) using ARCH specifications in place of a moving average of squared returns; (2) using Hull and White's (1987) adjustment for stochastic variance in Black and Scholes's (1973) formula; (3) accounting explicitly for weekends and the slowdown of variance whenever the market is closed.

Download or read book Pricing Ftse 100 Index Options Under Stochastic Volatility written by Yueh-Neng Lin and published by . This book was released on 1999 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: Results from the ARCH/GARCH literature and studies of implied volatility clearly show that volatility changes over time. This paper investigates the improvement in pricing of FTSE 100 index options from taking into account stochastic volatility. The major tool for this analysis is Heston?s (1993) stochastic volatility option pricing formula, which allows for systematic volatility risk and arbitrary correlation between underlying returns and volatility. The relation between actual and implied volatilities is also investigated using the approach of Bates (1996). The results reveal significant evidence of stochastic volatility implicit in option prices, suggesting that this phenomenon is essential to improving the performance of the Black-Scholes model for FTSE 100 index options. Given the assumption that the volatility risk premium is proportional to the spot volatility level, the compensation for volatility risk, in absolute terms, is significant. However, from the standpoint of internal consistency, the study finds that the estimated volatility of the time series of implied instantaneous variances is less than the variability of variance implicit in index option contracts. This indicates the presence of residual model misspecification.