Results 1 - 10 of 54

Calibration of the SABR Model in Illiquid Markets

by Graeme West , 2004
"... ABSTRACT Recently the SABR model has been developed to manage the option smile which is observed in derivatives markets. Typically, calibration of such models is straightforward as there is adequate data available for robust extraction of the parameters required asinputs to the model. The paper cons ..."
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considers calibration of the model in situations where input data is very sparse. Although this will require some creative decision making, the algorithms developed here are remarkably robust and can be used confidently for mark to market and hedging of option portfolios. KEY WORDS: SABR model, equity

European Options under Proportional Transaction Costs: An Algorithmic Approach to Pricing and Hedging

by Alet Roux, Krzysztof Tokarz, Tomasz Zastawniak
"... Abstract The paper is devoted to optimal superreplication of European options in the discrete setting under proportional transaction costs on the underlying asset. In particular, general pricing and hedging algorithms are developed. This extends previous work by many authors, which has been focused ..."
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Abstract The paper is devoted to optimal superreplication of European options in the discrete setting under proportional transaction costs on the underlying asset. In particular, general pricing and hedging algorithms are developed. This extends previous work by many authors, which has been focused

The numerical solution of nonlinear Black–Scholes equations

by Julia Ankudinova - , 2008
"... Nonlinear Black–Scholes equations have been increasingly attracting interest over the last two decades, since they provide more accurate values by taking into account more realistic assumptions, such as transaction costs, illiquid markets, risks from an unprotected portfolio or large investor’s pref ..."
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Nonlinear Black–Scholes equations have been increasingly attracting interest over the last two decades, since they provide more accurate values by taking into account more realistic assumptions, such as transaction costs, illiquid markets, risks from an unprotected portfolio or large investor’s

Hedging strategies and minimal variance portfolios for European and exotic options in a Lévy market

by Wing Yan Yip, David Stephens , Sofia Olhede , 2008
"... This paper presents hedging strategies for European and exotic options in a Lévy market. By applying Taylor’s Theorem, dynamic hedging portfolios are constructed under different market assumptions, such as the existence of power jump assets or moment swaps. In the case of European options or baskets ..."
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This paper presents hedging strategies for European and exotic options in a Lévy market. By applying Taylor’s Theorem, dynamic hedging portfolios are constructed under different market assumptions, such as the existence of power jump assets or moment swaps. In the case of European options

Tomul LVI ŞtiinŃe Economice 2009 ROBUST RECOVERY OF THE RISK NEUTRAL PROBABILITY DENSITY FROM OPTION PRICES

by Gabriel Turinici
"... We present in this paper a robust numerical procedure that allows extracting the risk neutral probability density data from a set of quoted European option prices. The procedure does not use any specific evolution model for the underlying; the probability density is the solution of a fitting problem ..."
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We present in this paper a robust numerical procedure that allows extracting the risk neutral probability density data from a set of quoted European option prices. The procedure does not use any specific evolution model for the underlying; the probability density is the solution of a fitting

OPTIMAL HEDGING OF PATH-DEPENDENT OPTIONS IN DISCRETE TIME INCOMPLETE MARKET

by Norman Josephy, Lucy Kimball, Victoria Steblovskaya
"... Abstract. We consider hedging of a path-dependent European style option with convex continuous payoff in a discrete time incomplete market, where underlying stock price jumps are distributed over a bounded interval. The incompleteness of the market produces an interval of no-arbitrage option prices ..."
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Abstract. We consider hedging of a path-dependent European style option with convex continuous payoff in a discrete time incomplete market, where underlying stock price jumps are distributed over a bounded interval. The incompleteness of the market produces an interval of no-arbitrage option prices

(updated version with corrections, full tables of numerical results, references appeared) Sensitivity Analysis for Monte Carlo Simulation of Option Pricing

by Michael C. Fu, Jian-qiang Hu , 1994
"... Monte Carlo simulation is one alternative for analyzing options markets when the assumptions of simpler analytical models are violated. We introduce techniques for the sensitivity analysis of option pricing which can be efficiently carried out in the simulation. In particular, using these techniques ..."
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the option value of an American call. Numerical results indicate that the additional computational effort required over that required to estimate a European option is relatively small.

PRICING DERICATIVE SECURITIES IN INCOMPLETE MARKETS

by R. G. Ingals, M. D. Rossetti, J. S. Smith, B. A. Peters
"... We propose the algorithms for pricing American and European options in incomplete markets. We consider a non-selffinancing replicating portfolio and minimize the hedging error consisting of the self-financing error of the portfolio dynamics and the error of the option’s payoff replication. We treat ..."
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We propose the algorithms for pricing American and European options in incomplete markets. We consider a non-selffinancing replicating portfolio and minimize the hedging error consisting of the self-financing error of the portfolio dynamics and the error of the option’s payoff replication. We treat

Robust Portfolio Optimization with Derivative Insurance Guarantees

by Steve Zymler, Berç Rustem, Daniel Kuhn , 2010
"... Robust portfolio optimization aims to maximize the worst-case portfolio return given that the asset returns are allowed to vary within a prescribed uncertainty set. If the uncertainty set is not too large, the resulting portfolio performs well under normal market conditions. However, its performance ..."
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performance may substantially degrade in the presence of market crashes, that is, if the asset returns materialize far outside of the uncertainty set. We propose a novel robust optimization model for designing portfolios that include European-style options. This model trades o weak and strong guarantees

A Computational Approach to Financial Option Pricing Using Quasi Monte Carlo Methods via Variance Reduction Techniques

by Farshid Mehrdoust, Kianoush Fathi Vajargah , 2011
"... In this paper, we consider two types of pricing option in financial markets using quasi Monte Carlo algorithm with variance reduction procedures. We evaluate Asian-style and European-style options pricing based on Black-Scholes model. Finally, some numerical results presented. ..."
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In this paper, we consider two types of pricing option in financial markets using quasi Monte Carlo algorithm with variance reduction procedures. We evaluate Asian-style and European-style options pricing based on Black-Scholes model. Finally, some numerical results presented.
Results 1 - 10 of 54