Alternatives to classical option pricing
We develop two alternate approaches to arbitrage-free, market-complete, option pricing. The first approach requires no riskless asset. We develop the general framework for this approach and illustrate it with two specific examples. The second approach does use a riskless asset. However, by ensuring equality between real-world and risk-neutral price-change probabilities, the second approach enables the computation of risk-neutral option prices utilizing expectations under the natural world probability P. This produces the same option prices as the classical approach in which prices are computed under the risk neutral measure Q. The second approach and the two specific examples of the first approach require the introduction of new, marketable asset types, specifically perpetual derivatives of a stock, and a stock whose cumulative return (rather than price) is deflated.
Code (0)
등록된 구현이 없습니다.
Similar Papers 제목 키워드 기반
Option Pricing Model with Transaction Costs
The author presents alternatives to the Black-Scholes european call option pricing model by incorporating different transaction cost structures in the replicating strategy. In particular, an exponentially decreasing stru…
modelEfficient and robust calibration of the Heston option pricing model for American options using an improved Cuckoo Search Algorithm
In this paper an improved Cuckoo Search Algorithm is developed to allow for an efficient and robust calibration of the Heston option pricing model for American options. Calibration of stochastic volatility models like th…
Additive normal tempered stable processes for equity derivatives and power law scaling
We introduce a simple model for equity index derivatives. The model generalizes well known L\`evy Normal Tempered Stable processes (e.g. NIG and VG) with time dependent parameters. It accurately fits Equity index implied…
Robust option pricing with volatility term structure -- An empirical study for variance options
The robust option pricing problem is to find upper and lower bounds on fair prices of financial claims using only the most minimal assumptions. It contrasts with the classical, model-based approach and gained prominence …
Semiclassical CEV Option Pricing Model: an Analytical Approach
This paper is devoted to obtain closed form solutions for the semiclassical (or WKB) approximation of the heat kernel propagator of the diffusion equation defined by the constant elasticity variance (CEV) option pricing …
model