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Implementing The Principle Of Maximum Entropy In Option Pricing
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Book Synopsis Implementing the Principle of Maximum Entropy in Option Pricing by : Weiyu Guo
Download or read book Implementing the Principle of Maximum Entropy in Option Pricing written by Weiyu Guo and published by . This book was released on 1999 with total page 258 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Black-Scholes option pricing model has been the foundation of option pricing analysis. Yet as well known as the model itself, its empirical deficiencies are also well documented. Option prices generated by the Black-Scholes formula are often found to systematically differ from observed prices. The patterns of mispricing are generally believed to result from violations of one or more assumptions underlying the Black-Scholes option pricing model, such as the natural logarithm of the underlying stock price following a normal distribution with a variance that increases exactly linearly with time. This dissertation concerns an evaluation of the Principle of Maximum Entropy as a method for recovering a probability density function from stock index option prices. Theoretically, the resulting probability density is "the least prejudiced estimate since it is maximally noncommittal with respect to missing or unknown information." Empirically, this dissertation demonstrates that entropy valuation gives much stronger performance than does the Black-Scholes model in pricing stock index options on the S & P 500 and on the Dow Jones Industrial Average.
Book Synopsis A New Method of Employing the Principle of Maximum Entropy to Retrieve the Risk Neutral Density by : Leonidas Rompolis
Download or read book A New Method of Employing the Principle of Maximum Entropy to Retrieve the Risk Neutral Density written by Leonidas Rompolis and published by . This book was released on 2017 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper suggests a new method of implementing the principle of maximum entropy to retrieve the risk neutral density of future stock, or any other asset, returns from European call and put prices. Instead of options prices used by previous studies the method maximizes the entropy measure subject to values of the risk neutral moments. These moments can be retrieved from market option prices in a first step, at each point of time. Compared to other existing methods of retrieving the risk neutral density based on the principle of maximum entropy, the benefits of the method that the paper suggests is the use of all the available information provided by the market more sufficiently. To evaluate the performance of the suggested method, the paper compares the new method proposed to other risk neutral density estimation techniques based on a number of simulation and empirical exercises.
Book Synopsis Estimation of the Asset Price Distribution Using the Maximum Entropy Principle by : Geon Ho Choe
Download or read book Estimation of the Asset Price Distribution Using the Maximum Entropy Principle written by Geon Ho Choe and published by . This book was released on 2008 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: Option price contains information on the distribution of the underlying asset. Under insufficient condition we employ the maximum entropy principle to estimate the probability density of the asset price. The problem is equivalent to finding the Lagrange multipliers of a linear functional defined by entropy and payoff functions. Buchen and Kelly proved that the maximum entropy distribution recovered from observed option prices is quite similar with the original asset distribution. In this article we apply a similar method to recover the probability density function of an asset from given option prices for binary options and European options.
Book Synopsis Option Pricing with Maximum Entropy Densities by : Omid M. Ardakani
Download or read book Option Pricing with Maximum Entropy Densities written by Omid M. Ardakani and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Entropy pricing applies notions of information theory to derive the theoretical value of options. This paper employs the maximum entropy formulation of option pricing, given risk-neutral moment constraints computed directly from the observed prices. First, higher-order moments are used to generate option prices. Then a generalization of Shannon entropy, known as Renyi entropy, is studied to account for extreme events. This maximum entropy problem provides a class of heavy-tailed distributions. Examples and Monte Carlo simulations are provided to examine the effects of moment constraints on option prices. The call option values are then constructed using daily S&P 500 index options. The findings suggest that entropy pricing with higher-order moment constraints provides higher forecasting accuracy.
Book Synopsis Maximum Entropy Option Pricing by : Yuehong Yang
Download or read book Maximum Entropy Option Pricing written by Yuehong Yang and published by . This book was released on 1997 with total page 340 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Maximum Entropy Distribution of an Asset Inferred from Option Prices by : Peter W. Buchen
Download or read book The Maximum Entropy Distribution of an Asset Inferred from Option Prices written by Peter W. Buchen and published by . This book was released on 2000 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper describes the application of the Principle of Maximum Entropy to the estimation of the distribution of an underlying asset from a set of option prices. The resulting distribution is least committal with respect to unknown or missing information and is hence the least prejudiced. The maximum entropy distribution is the only information about the asset that can be inferred from the price data alone. An extension to the Principle of Minimum Cross-Entropy allows the inclusion of prior knowledge of the asset distribution. We show that the maximum entropy distribution is able to accurately fit a known density, given simulated option prices at different strikes.
Book Synopsis Probability Distributions of Assets Inferred from Option Prices Via the Principle of Maximum Entropy by : Jonathan Borwein
Download or read book Probability Distributions of Assets Inferred from Option Prices Via the Principle of Maximum Entropy written by Jonathan Borwein and published by . This book was released on 2002 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Maximum Entropy and Its Application to Option Pricing by : Matthew Bryce Hardman
Download or read book Maximum Entropy and Its Application to Option Pricing written by Matthew Bryce Hardman and published by . This book was released on 2000 with total page 328 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Method of Maximum Entropy by : Henryk Gzyl
Download or read book The Method of Maximum Entropy written by Henryk Gzyl and published by World Scientific. This book was released on 1995 with total page 161 pages. Available in PDF, EPUB and Kindle. Book excerpt: This monograph is an outgrowth of a set of lecture notes on the maximum entropy method delivered at the 1st Venezuelan School of Mathematics. This yearly event aims at acquainting graduate students and university teachers with the trends, techniques and open problems of current interest. In this book the author reviews several versions of the maximum entropy method and makes its underlying philosophy clear.
Book Synopsis Applying Maximum Entropy to Econometric Problems by : R. Carter Hill
Download or read book Applying Maximum Entropy to Econometric Problems written by R. Carter Hill and published by JAI Press Incorporated. This book was released on 1997-07-25 with total page 374 pages. Available in PDF, EPUB and Kindle. Book excerpt: This volume of Advances in Econometrics looks at applying maximum entropy to econometric problems and consists of two sections: the first section contains papers developing econometric methods based on the entropy principle; an interesting array of applications is presented in the second section of the volume.
Book Synopsis On Maximum Entropy Regularization for a Specific Inverse Problem of Option Pricing by : Bernd Hofmann
Download or read book On Maximum Entropy Regularization for a Specific Inverse Problem of Option Pricing written by Bernd Hofmann and published by . This book was released on 2003 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Using Maximum Entropy to Price Arithmetic Mean Options by : M. Hardman
Download or read book Using Maximum Entropy to Price Arithmetic Mean Options written by M. Hardman and published by . This book was released on 1996 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author :Brian Buck Publisher :Oxford : Clarendon Press ; New York : Oxford University Press ISBN 13 : Total Pages :260 pages Book Rating :4.3/5 (91 download)
Book Synopsis Maximum Entropy in Action by : Brian Buck
Download or read book Maximum Entropy in Action written by Brian Buck and published by Oxford : Clarendon Press ; New York : Oxford University Press. This book was released on 1991 with total page 260 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book is a collection of introductory, interdisciplinary articles and lectures covering the fundamentals of the maximum entropy approach, a powerful new technique that provides a much needed extension of the established principles of rational inference in the sciences. Maximum entropy allows the interpretation of incomplete and "noisy" data, providing a description of the underlying physical systems. It has found application in both practical and theoretical studies ranging from image enhancement to nuclear physics, and from statistical mechanics to economics. The work explores these applications with specific problems of data analysis taken from the physical sciences. It will interest all physical scientists who deal with data and its interpretation, including statisticians and statistical physicists.
Book Synopsis Volatility and Time Series Econometrics by : Mark Watson
Download or read book Volatility and Time Series Econometrics written by Mark Watson and published by Oxford University Press. This book was released on 2010-02-11 with total page 432 pages. Available in PDF, EPUB and Kindle. Book excerpt: A volume that celebrates and develops the work of Nobel Laureate Robert Engle, it includes original contributions from some of the world's leading econometricians that further Engle's work in time series economics
Book Synopsis A Family of Maximum Entropy Densities Matching Call Option Prices by : Cassio Neri
Download or read book A Family of Maximum Entropy Densities Matching Call Option Prices written by Cassio Neri and published by . This book was released on 2014 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the position of the Buchen-Kelly density in the family of entropy maximising densities from Neri & Schneider (2012) which all match European call option prices for a given maturity observed in the market. Using the Legendre transform which links the entropy function and the cumulant generating function, we show that it is both the unique continuous density in this family and the one with the greatest entropy. We present a fast root-finding algorithm that can be used to calculate the Buchen-Kelly density, and give upper boundaries for three different discrepancies that can be used as convergence criteria. Given the call prices, arbitrage-free digital prices at the same strikes can only move within upper and lower boundaries given by left and right call spreads. As the number of call prices increases, these bounds become tighter, and we give two examples where the densities converge to the Buchen-Kelly density in the sense of relative entropy when we use centered call spreads as proxies for digital prices. As pointed out by Breeden and Litzenberger, in the limit a continuous set of call prices completely determines the density.
Book Synopsis Bayesian Inference and Maximum Entropy Methods in Science and Engineering by : Marcelo de Souza Lauretto
Download or read book Bayesian Inference and Maximum Entropy Methods in Science and Engineering written by Marcelo de Souza Lauretto and published by American Institute of Physics. This book was released on 2008-12-04 with total page 402 pages. Available in PDF, EPUB and Kindle. Book excerpt: The MaxEnt2008 - 28th International Workshop on Bayesian Inference and Maximum Entropy Methods in Science and Engineering - encompassed all aspects of information theory, probability, statistical inference and statistical physics, including research on foundations and theoretical developments, as well as modeling techniques for several specific application areas.
Book Synopsis Computer Aided Systems Theory – EUROCAST 2017 by : Roberto Moreno-Díaz
Download or read book Computer Aided Systems Theory – EUROCAST 2017 written by Roberto Moreno-Díaz and published by Springer. This book was released on 2018-01-25 with total page 489 pages. Available in PDF, EPUB and Kindle. Book excerpt: The two-volume set LNCS 10671 and 10672 constitutes the thoroughly refereed proceedings of the 16th International Conference on Computer Aided Systems Theory, EUROCAST 2017, held in Las Palmas de Gran Canaria, Spain, in February 2017. The 117 full papers presented were carefully reviewed and selected from 160 submissions. The papers are organized in topical sections on: pioneers and landmarks in the development of information and communication technologies; systems theory, socio-economic systems and applications; theory and applications of metaheuristic algorithms; stochastic models and applications to natural, social and technical systems; model-based system design, verification and simulation; applications of signal processing technology; algebraic and combinatorial methods in signal and pattern analysis; computer vision, deep learning and applications; computer and systems based methods and electronics technologies in medicine; intelligent transportation systems and smart mobility.
