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Simulation Based Estimation Of Contingent Claims Prices
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Book Synopsis Simulation-Based Estimation of Contingent-Claims Prices by : Peter C. B. Phillips
Download or read book Simulation-Based Estimation of Contingent-Claims Prices written by Peter C. B. Phillips and published by . This book was released on 2013 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: A new methodology is proposed to estimate theoretical prices of financial contingent-claims whose values are dependent on some other underlying financial assets. In the literature the preferred choice of estimator is usually maximum likelihood (ML). ML has strong asymptotic justification but is not necessarily the best method in finite samples. The present paper proposes instead a simulation-based method that improves the finite sample performance of the ML estimator while maintaining its good asymptotic properties. The methods are implemented and evaluated here in the Black-Scholes option pricing model and in the Vasicek bond pricing model, but have wider applicability. Monte Carlo studies show that the proposed procedures achieve bias reductions over ML estimation in pricing contingent claims. The bias reductions are sometimes accompanied by reductions in variance, leading to significant overall gains in mean squared estimation error. Empirical applications to US treasury bills highlight the differences between the bond prices implied by the simulation-based approach and those delivered by ML. Some consequences for the statistical testing of contingent-claim pricing models are discussed.
Book Synopsis Simulation-based Estimation of Contingent-claims Prices by : Peter C.B. Phillips
Download or read book Simulation-based Estimation of Contingent-claims Prices written by Peter C.B. Phillips and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Systemic Contingent Claims Analysis by : Mr.Andreas A. Jobst
Download or read book Systemic Contingent Claims Analysis written by Mr.Andreas A. Jobst and published by International Monetary Fund. This book was released on 2013-02-27 with total page 93 pages. Available in PDF, EPUB and Kindle. Book excerpt: The recent global financial crisis has forced a re-examination of risk transmission in the financial sector and how it affects financial stability. Current macroprudential policy and surveillance (MPS) efforts are aimed establishing a regulatory framework that helps mitigate the risk from systemic linkages with a view towards enhancing the resilience of the financial sector. This paper presents a forward-looking framework ("Systemic CCA") to measure systemic solvency risk based on market-implied expected losses of financial institutions with practical applications for the financial sector risk management and the system-wide capital assessment in top-down stress testing. The suggested approach uses advanced contingent claims analysis (CCA) to generate aggregate estimates of the joint default risk of multiple institutions as a conditional tail expectation using multivariate extreme value theory (EVT). In addition, the framework also helps quantify the individual contributions to systemic risk and contingent liabilities of the financial sector during times of stress.
Book Synopsis Quasilinearization and the Estimation of Models Arising in the Pricing of Contingent Claims by : Nayef Shaher Zubi
Download or read book Quasilinearization and the Estimation of Models Arising in the Pricing of Contingent Claims written by Nayef Shaher Zubi and published by . This book was released on 1985 with total page 210 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Simulation-based Inference in Econometrics by : Roberto Mariano
Download or read book Simulation-based Inference in Econometrics written by Roberto Mariano and published by Cambridge University Press. This book was released on 2000-07-20 with total page 488 pages. Available in PDF, EPUB and Kindle. Book excerpt: This substantial volume has two principal objectives. First it provides an overview of the statistical foundations of Simulation-based inference. This includes the summary and synthesis of the many concepts and results extant in the theoretical literature, the different classes of problems and estimators, the asymptotic properties of these estimators, as well as descriptions of the different simulators in use. Second, the volume provides empirical and operational examples of SBI methods. Often what is missing, even in existing applied papers, are operational issues. Which simulator works best for which problem and why? This volume will explicitly address the important numerical and computational issues in SBI which are not covered comprehensively in the existing literature. Examples of such issues are: comparisons with existing tractable methods, number of replications needed for robust results, choice of instruments, simulation noise and bias as well as efficiency loss in practice.
Book Synopsis Estimating Tranche Spreads by Loss Process Simulation by : Baeho Kim
Download or read book Estimating Tranche Spreads by Loss Process Simulation written by Baeho Kim and published by . This book was released on 2016 with total page 10 pages. Available in PDF, EPUB and Kindle. Book excerpt: A credit derivative is a path dependent contingent claim on the aggregate loss in a portfolio of credit sensitive securities. We estimate the value of a credit derivative by Monte Carlo simulation of the affine point process that models the loss. We consider two algorithms that exploit the direct specification of the loss process in terms of an intensity. One algorithm is based on the simulation of intensity paths. Here discretization introduces bias into the results. The other algorithm facilitates exact simulation of default times and generates an unbiased estimator of the derivative price. We implement the algorithms to value index and tranche swaps, and we calibrate the loss process to quotes on the CDX North America High Yield index.
Book Synopsis Handbook of Computational Finance by : Jin-Chuan Duan
Download or read book Handbook of Computational Finance written by Jin-Chuan Duan and published by Springer Science & Business Media. This book was released on 2011-10-25 with total page 791 pages. Available in PDF, EPUB and Kindle. Book excerpt: Any financial asset that is openly traded has a market price. Except for extreme market conditions, market price may be more or less than a “fair” value. Fair value is likely to be some complicated function of the current intrinsic value of tangible or intangible assets underlying the claim and our assessment of the characteristics of the underlying assets with respect to the expected rate of growth, future dividends, volatility, and other relevant market factors. Some of these factors that affect the price can be measured at the time of a transaction with reasonably high accuracy. Most factors, however, relate to expectations about the future and to subjective issues, such as current management, corporate policies and market environment, that could affect the future financial performance of the underlying assets. Models are thus needed to describe the stochastic factors and environment, and their implementations inevitably require computational finance tools.
Book Synopsis Dynamic Evaluation of Contingent Claim Models (an Analysis of Model Error). by : Robert A. Jarrow
Download or read book Dynamic Evaluation of Contingent Claim Models (an Analysis of Model Error). written by Robert A. Jarrow and published by . This book was released on 1999 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: A Monte Carlo based Bayesian estimator of contingent claim models formally incorporating model error and parameter uncertainty is introduced. Estimate and prediction on the basis of a model extended by a regression of (functions of) variables and parameters or a non parametric expansion of the model is also proposed. For these models, we show how to make draws from the exact posterior distributions of the parameters or any function of interest such as hedge ratios or option values. It is crucial to obtain exact posterior or predictive densities in a Bayesian setup because (1) typical applications may involve small sample situations, (2) in an updating setup one will want to incorporate specific prior information, and (3) parameters and on linear functions thereof will be shown to be non-normal thus rendering standard asymptotic inference ineffective. The Bayesian Monte Carlo estimators derived allow the simulation of the exact posterior densities of parameters and deterministic functions of parameters, e.g., Delta, Gamma, Vega, Theta, model value, and the exact predictive densities of the contingent claim prices. We provide both within sample (residual analysis), and out of sample (predictive) specification tests which can be used in a dynamic trading system. Finally, the model is extended by allowing for the (small) probability of observation with a larger model error. This produces the posterior probability of each observation being an outlier, and may help distinguish market from model error.
Book Synopsis Semiparametric Pricing of Multivariate Contingent Claims by : Joshua V. Rosenberg
Download or read book Semiparametric Pricing of Multivariate Contingent Claims written by Joshua V. Rosenberg and published by . This book was released on 2009 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops and implements a methodology for pricing multivariate contingent claims (MVCC s) based on semiparametric estimation of the multivariate risk-neutral density function.This methodology generates MVCC prices which are consistent with current market prices of univariate contingent claims.This method allows for completely general marginal risk-neutral densities and is compatible with all univariate risk-neutral density estimation techniques. The univariate risk-neutral densities are related by their risk-neutral correlation, which is estimated using time-series data on asset returns and an empirical pricing kernel (Rosenberg and Engle, 1999). This permits the multivariate risk-neutral density to be identified without requiring observation of multivariate contingent claims prices. The semiparametric MVCC pricing technique is used for valuation of one-month options on the better of two equity index returns. Option contracts with payoffs dependent on are four equity indexpairs are considered: Samp;P500 - CAC40, Samp;P500 - NK225, Samp;P500 - FTSE100, and Samp;P500 - DAX30. Five marginal risk-neutral densities (Samp;P500, CAC40, NK225, FTSE100, and DAX30) are estimated semiparametrically using a cross-section of contemporaneously measured equity index option prices in each market. A bivariate risk-neutral Plackett (1965) density is constructed using the given marginals and risk-neutral correlation derived using an empirical pricing kernel and the historical joint density of the index returns. Price differences from a lognormal pricing formulausing historical and risk-neutral return moments are found to be significant.
Book Synopsis Nonparametric Pricing of Multivariate Contingent Claims by : Joshua V. Rosenberg
Download or read book Nonparametric Pricing of Multivariate Contingent Claims written by Joshua V. Rosenberg and published by . This book was released on 2006 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: Results from the method of copulas allow the multivariate risk-neutral density to be written as a product of marginal risk-neutral densities and a risk-neutral dependence function. A technique to price contingent claims can be developed using non-parametrically estimated marginal risk-neutral densities (based on options data) and a non-parametric dependence function (based on historical return data).Non-parametric estimation eliminates the pricing biases that result from incorrect parametric assumptions such as lognormality. The technique generates fitted multivariate contingent claim prices that are consistent with prices of traded univariate options. Under some general conditions, the objective and risk-neutral dependence functions are identical, which justifies the use of historical return data for the non-parametric dependence function, so that no data are required on traded multivariate claims.
Book Synopsis Maximum Simulated Likelihood Methods and Applications by : William Greene
Download or read book Maximum Simulated Likelihood Methods and Applications written by William Greene and published by Emerald Group Publishing. This book was released on 2010-12-03 with total page 371 pages. Available in PDF, EPUB and Kindle. Book excerpt: This collection of methodological developments and applications of simulation-based methods were presented at a workshop at Louisiana State University in November, 2009. Topics include: extensions of the GHK simulator; maximum-simulated likelihood; composite marginal likelihood; and modelling and forecasting volatility in a bayesian approach.
Book Synopsis Simulation-based Econometric Methods by : Christian Gourieroux
Download or read book Simulation-based Econometric Methods written by Christian Gourieroux and published by Oxford University Press. This book was released on 1996 with total page 185 pages. Available in PDF, EPUB and Kindle. Book excerpt: High speed computing has enabled a new generation of statistical econometrics to become available. The simulation of problems that previously were too unwieldy to solve because of large integrals is now possible.
Book Synopsis Neural Network for Pricing and Universal Static Hedging of Contingent Claims by : Vikranth Lokeshwar
Download or read book Neural Network for Pricing and Universal Static Hedging of Contingent Claims written by Vikranth Lokeshwar and published by . This book was released on 2019 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present here a regress later based Monte Carlo approach that uses neural networks for pricing high-dimensional contingent claims. The choice of specific architecture of the neural networks used in the proposed algorithm provides for interpretability of the model, a feature that is often desirable in the financial context. Specifically, the interpretation leads us to demonstrate that any contingent claim -- possibly high dimensional and path-dependent -- under Markovian and no- arbitrage assumptions, can be semi-statically hedged using a portfolio of short maturity options. We show how the method can be used to obtain an upper and lower bound to the true price, where the lower bound is obtained by following a sub-optimal policy, while the upper bound by exploiting the dual formulation. Unlike other duality based upper bounds where one typically has to resort to nested simulation for constructing super-martingales, the martingales in the current approach come at no extra cost, without the need for any sub-simulations. We demonstrate through numerical examples the simplicity and efficiency of the method for both pricing and semi-static hedging of path-dependent options.
Book Synopsis World Scientific Reference On Contingent Claims Analysis In Corporate Finance (In 4 Volumes) by : Michel Crouhy
Download or read book World Scientific Reference On Contingent Claims Analysis In Corporate Finance (In 4 Volumes) written by Michel Crouhy and published by World Scientific. This book was released on 2019-01-21 with total page 2039 pages. Available in PDF, EPUB and Kindle. Book excerpt: Black and Scholes (1973) and Merton (1973, 1974) (hereafter referred to as BSM) introduced the contingent claim approach (CCA) to the valuation of corporate debt and equity. The BSM modeling framework is also named the 'structural' approach to risky debt valuation. The CCA considers all stakeholders of the corporation as holding contingent claims on the assets of the corporation. Each claim holder has different priorities, maturities and conditions for payouts. It is based on the principle that all the assets belong to all the liability holders.The BSM modeling framework gives the basic fundamental version of the structural model where default is assumed to occur when the net asset value of the firm at the maturity of the pure-discount debt becomes negative, i.e., market value of the assets of the firm falls below the face value of the firm's liabilities. In a regime of limited liability, the shareholders of the firm have the option to default on the firm's debt. Equity can be viewed as a European call option on the firm's assets with a strike price equal to the face value of the firm's debt. Actually, CCA can be used to value all the components of the firm's liabilities, equity, warrants, debt, contingent convertible debt, guarantees, etc.In the four volumes we present the major academic research on CCA in corporate finance starting from 1973, with seminal papers of Black and Scholes (1973) and Merton (1973, 1974). Volume I covers the foundation of CCA and contributions on equity valuation. Volume II focuses on corporate debt valuation and the capital structure of the firm. Volume III presents empirical evidence on the valuation of debt instruments as well as applications of the CCA to various financial arrangements. The papers in Volume IV show how to apply the CCA to analyze sovereign credit risk, contingent convertible bonds (CoCos), deposit insurance and loan guarantees. Volume 1: Foundations of CCA and Equity ValuationVolume 1 presents the seminal papers of Black and Scholes (1973) and Merton (1973, 1974). This volume also includes papers that specifically price equity as a call option on the corporation. It introduces warrants, convertible bonds and taxation as contingent claims on the corporation. It highlights the strong relationship between the CCA and the Modigliani-Miller (M&M) Theorems, and the relation to the Capital Assets Pricing Model (CAPM). Volume 2: Corporate Debt Valuation with CCAVolume 2 concentrates on corporate bond valuation by introducing various types of bonds with different covenants as well as introducing various conditions that trigger default. While empirical evidence indicates that the simple Merton's model underestimates the credit spreads, additional risk factors like jumps can be used to resolve it. Volume 3: Empirical Testing and Applications of CCAVolume 3 includes papers that look at issues in corporate finance that can be explained with the CCA approach. These issues include the effect of dividend policy on the valuation of debt and equity, the pricing of employee stock options and many other issues of corporate governance. Volume 4: Contingent Claims Approach for Banks and Sovereign DebtVolume 4 focuses on the application of the contingent claim approach to banks and other financial intermediaries. Regulation of the banking industry led to the creation of new financial securities (e.g., CoCos) and new types of stakeholders (e.g., deposit insurers).
Book Synopsis Pricing Path-dependent Derivative Securities Using Monte Carlo Simulation and Intra-market Statistical Trading Model by : Sungjoo Lee
Download or read book Pricing Path-dependent Derivative Securities Using Monte Carlo Simulation and Intra-market Statistical Trading Model written by Sungjoo Lee and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis is composed of two parts. The first parts deals with a technique for pricing American-style contingent options. The second part details a statistical arbitrage model using statistical process control approaches. We propose a novel simulation approach for pricing American-style contingent claims. We develop an adaptive policy search algorithm for obtaining the optimal policy in exercising an American-style option. The option price is first obtained by estimating the optimal option exercising policy and then evaluating the option with the estimated policy through simulation. Both high-biased and low-biased estimators of the option price are obtained. We show that the proposed algorithm leads to convergence to the true optimal policy with probability one. This policy search algorithm requires little knowledge about the structure of the optimal policy and can be naturally implemented using parallel computing methods. As illustrative examples, computational results on pricing regular American options and American-Asian options are reported and they indicate that our algorithm is faster than certain alternative American option pricing algorithms reported in the literature. Secondly, we investigate arbitrage opportunities arising from continuous monitoring of the price difference of highly correlated assets. By differentiating between two assets, we can separate common macroeconomic factors that influence the asset price movements from an idiosyncratic condition that can be monitored very closely by itself. Since price movements are in line with macroeconomic conditions such as interest rates and economic cycles, we can easily see out of the normal behaviors on the price changes. We apply a statistical process control approach for monitoring time series with the serially correlated data. We use various variance estimators to set up and establish trading strategy thresholds.
Book Synopsis Recent Advances In Financial Engineering 2009 - Proceedings Of The Kier-tmu International Workshop On Financial Engineering 2009 by : Masaaki Kijima
Download or read book Recent Advances In Financial Engineering 2009 - Proceedings Of The Kier-tmu International Workshop On Financial Engineering 2009 written by Masaaki Kijima and published by World Scientific. This book was released on 2010-06-10 with total page 284 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book consists of 11 papers based on research presented at the KIER-TMU International Workshop on Financial Engineering, held in Tokyo in 2009. The Workshop, organised by Kyoto University's Institute of Economic Research (KIER) and Tokyo Metropolitan University (TMU), is the successor to the Daiwa International Workshop on Financial Engineering held from 2004 to 2008 by Professor Kijima (the Chair of this Workshop) and his colleagues. Academic researchers and industry practitioners alike have presented the latest research on financial engineering at this international venue.These papers address state-of-the-art techniques in financial engineering, and have undergone a rigorous selection process to make this book a high-quality one. This volume will be of interest to academics, practitioners, and graduate students in the field of quantitative finance and financial engineering.
Book Synopsis Applied Operational Research by : Kaveh Sheibani
Download or read book Applied Operational Research written by Kaveh Sheibani and published by ORLAB Analytics. This book was released on 2012-07-25 with total page 305 pages. Available in PDF, EPUB and Kindle. Book excerpt: These proceedings gather contributions presented at the 4th International Conference on Applied Operational Research (ICAOR 2012) in Bangkok, Thailand, July 25-27, 2012, published in the series Lecture Notes in Management Science (LNMS). The conference covers all aspects of Operational Research and Management Science (OR/MS) with a particular emphasis on applications.
