The Valuation Of Compound Options And American Calls On Dividend Paying Stocks With Time Varying Volatility

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The Valuation of Compound Options and American Calls on Dividend Paying Stocks with Time-Varying Volatility

Author : Steven B. Raymar
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis The Valuation of Compound Options and American Calls on Dividend Paying Stocks with Time-Varying Volatility by : Steven B. Raymar

Download or read book The Valuation of Compound Options and American Calls on Dividend Paying Stocks with Time-Varying Volatility written by Steven B. Raymar and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper extends Geske's (1979a) compound European call option pricing model and the Roll (1977), Geske (1979b), and Whaley (1981) (RGW) American call pricing model to the case where the variance of the underlying asset changes deterministically. The theoretical analysis shows that the generalized models use integrals of the time-varying variance in the same way as Merton's (1973) generalization of the Black and Scholes (1973) European option pricing model. The resulting analytic expressions require two variance parameters and an adjusted correlation coefficient for the relevant bivariate normal distribution. The comparison of our time-varying model with RGW reveals small differences which may vary in sign. For at-the-money options, if stock variability decreases after dividend payment dates, then initial RGW prices are biased low; conversely, RGW prices are too high if variability has a tendency to increase after dividends.

American-Style Derivatives

Author : Jerome Detemple
Publisher : CRC Press
ISBN 13 : 1420034863
Total Pages : 247 pages
Book Rating : 4.4/5 (2 download)

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Book Synopsis American-Style Derivatives by : Jerome Detemple

Download or read book American-Style Derivatives written by Jerome Detemple and published by CRC Press. This book was released on 2005-12-09 with total page 247 pages. Available in PDF, EPUB and Kindle. Book excerpt: Focusing on recent developments in the field, American-Style Derivatives provides an extensive treatment of option pricing with emphasis on the valuation of American options on dividend-paying assets. This book reviews valuation principles for European contingent claims and extends the analysis to American contingent claims. It presents basic valuation principles for American options including barrier, capped, and multi-asset options. It also reviews numerical methods for option pricing and compares their relative performance. Ideal for students and researchers in quantitative finance, this material is accessible to those with a background in stochastic processes or derivative securities.

Mathematical and Statistical Methods for Actuarial Sciences and Finance

Author : Marco Corazza
Publisher : Springer Science & Business Media
ISBN 13 : 8847014816
Total Pages : 315 pages
Book Rating : 4.8/5 (47 download)

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Book Synopsis Mathematical and Statistical Methods for Actuarial Sciences and Finance by : Marco Corazza

Download or read book Mathematical and Statistical Methods for Actuarial Sciences and Finance written by Marco Corazza and published by Springer Science & Business Media. This book was released on 2011-06-07 with total page 315 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book features selected papers from the international conference MAF 2008 that cover a wide variety of subjects in actuarial, insurance and financial fields, all treated in light of the successful cooperation between mathematics and statistics.

Pricing American Options when the Underlying Stock Price Exhibits Time-varying Volatility

Author :
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (471 download)

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Book Synopsis Pricing American Options when the Underlying Stock Price Exhibits Time-varying Volatility by :

Download or read book Pricing American Options when the Underlying Stock Price Exhibits Time-varying Volatility written by and published by . This book was released on 2002 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

The Journal of Financial Engineering

Author :
Publisher :
ISBN 13 :
Total Pages : 418 pages
Book Rating : 4.3/5 (91 download)

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Book Synopsis The Journal of Financial Engineering by :

Download or read book The Journal of Financial Engineering written by and published by . This book was released on 1998 with total page 418 pages. Available in PDF, EPUB and Kindle. Book excerpt:

American Capped Call Options on Dividend Paying Assets

Author : Jerome Detemple
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis American Capped Call Options on Dividend Paying Assets by : Jerome Detemple

Download or read book American Capped Call Options on Dividend Paying Assets written by Jerome Detemple and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper addresses the problem of valuing American call options with caps on dividend paying assets. Since early exercise is allowed, the valuation problem requires the determination of optimal exercise policies. Options with two types of caps are analyzed: constant caps and caps with a constant growth rate. For constant caps the optimal exercise policy is to exercise at the first time at which the underlying asset's price equals or exceeds the minimum of the cap and the optimal exercise boundary for the corresponding uncapped option. For caps that grow at a constant rate the optimal exercise strategy can be specified by three endogenous parameters.

Recent Developments In Mathematical Finance - Proceedings Of The International Conference On Mathematical Finance

Author : Jiongmin Yong
Publisher : World Scientific
ISBN 13 : 9814489697
Total Pages : 286 pages
Book Rating : 4.8/5 (144 download)

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Book Synopsis Recent Developments In Mathematical Finance - Proceedings Of The International Conference On Mathematical Finance by : Jiongmin Yong

Download or read book Recent Developments In Mathematical Finance - Proceedings Of The International Conference On Mathematical Finance written by Jiongmin Yong and published by World Scientific. This book was released on 2001-12-28 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.

Recent Developments in Mathematical Finance

Author : Jiongmin Yong
Publisher : World Scientific
ISBN 13 : 9812799575
Total Pages : 286 pages
Book Rating : 4.8/5 (127 download)

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Book Synopsis Recent Developments in Mathematical Finance by : Jiongmin Yong

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. Contents: Intensity-Based Valuation of Basket Credit Derivatives (T R Bielecki & M Rutkowski); Comonotonicity of Backward Stochastic Differential Equations (Z Chen & X Wang); Some Lookback Option Pricing Problems (X Guo); Optimal Investment and Consumption with Fixed and Proportional Transaction Costs (H Liu); Filtration Consistent Nonlinear Expectations (F Coquet et al.); A Theory of Volatility (A Savine); Discrete Time Markets with Transaction Costs (L Stettner); Options on Dividend Paying Stocks (R Beneder & T Vorst); Risk: From Insurance to Finance (H Yang); Arbitrage Pricing Systems in a Market Driven by an It Process (S Luo et al.); and other papers. Readership: Graduate students and researchers in mathematical finance and economics.

Valuation of Razorback Executive Stock Options

Author : Joe Cheung
Publisher :
ISBN 13 :
Total Pages : 12 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Valuation of Razorback Executive Stock Options by : Joe Cheung

Download or read book Valuation of Razorback Executive Stock Options written by Joe Cheung and published by . This book was released on 2002 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt: Executive stock options with a time-varying strike price are a recent innovation in Australia and New Zealand, and possibly other parts of the world. These options have a strike price that increases at a prespecified rate and also have a dividend protection feature that reduces the strike price by the amount of any dividend payment. With an upward trend and dividend-induced drops, the path of the strike price over time appears jagged. Hence the label 'razorback' options. Standard option pricing methodology is not easily applied to value razorback options, since the strike price is typically a path-dependent function of the stock price. For example, suppose the company pays a dividend yield as a constant percentage of the stock price. In this case, the cumulative dividend adjustment to the strike price depends on the particular path of the stock price. While analytic valuation appears intractable, these path-dependent options can be valued using a least squares Monte Carlo approach developed by Longstaff and Schwartz (2001). We examine the effects of changing volatility, maturity, vesting period and dividend yield on these executive stock option values. Our results indicate that valuations can differ quite significantly from those obtained from standard Black-Scholes valuations.

Valuing American Options Using Fast Recursive Projections

Author : Antonio Cosma
Publisher :
ISBN 13 :
Total Pages : 67 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Valuing American Options Using Fast Recursive Projections by : Antonio Cosma

Download or read book Valuing American Options Using Fast Recursive Projections written by Antonio Cosma and published by . This book was released on 2016 with total page 67 pages. Available in PDF, EPUB and Kindle. Book excerpt: We introduce a fast and widely applicable numerical pricing method that uses recursive projections. The method is based on a simple grid sampling of value functions and state-price densities. Numerical illustrations with different American and Bermudan payoffs with dividend paying stocks in the Black Scholes and Heston models show that the method is fast, accurate, and general. We find that the early exercise boundary of an American call option on a discrete dividend paying stock is higher under the Merton and Heston models than under the Black-Scholes model, as opposed to the continuous dividend case. A large database of call options on stocks with quarterly dividends shows that adding stochastic volatility and jumps to the Black-Scholes benchmark reduces the amount foregone by call holders failing to optimally exercise by 25%. Transaction fees cannot fully explain the suboptimal behavior.

On the Valuation of American Put Options on Dividend-paying Stocks

Author : Giovanni Barone-Adesi
Publisher :
ISBN 13 :
Total Pages : 28 pages
Book Rating : 4.:/5 (911 download)

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Book Synopsis On the Valuation of American Put Options on Dividend-paying Stocks by : Giovanni Barone-Adesi

Download or read book On the Valuation of American Put Options on Dividend-paying Stocks written by Giovanni Barone-Adesi and published by . This book was released on 1988 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Handbook of Quantitative Finance and Risk Management

Author : Cheng-Few Lee
Publisher : Springer Science & Business Media
ISBN 13 : 0387771174
Total Pages : 1700 pages
Book Rating : 4.3/5 (877 download)

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Book Synopsis Handbook of Quantitative Finance and Risk Management by : Cheng-Few Lee

Download or read book Handbook of Quantitative Finance and Risk Management written by Cheng-Few Lee and published by Springer Science & Business Media. This book was released on 2010-06-14 with total page 1700 pages. Available in PDF, EPUB and Kindle. Book excerpt: Quantitative finance is a combination of economics, accounting, statistics, econometrics, mathematics, stochastic process, and computer science and technology. Increasingly, the tools of financial analysis are being applied to assess, monitor, and mitigate risk, especially in the context of globalization, market volatility, and economic crisis. This two-volume handbook, comprised of over 100 chapters, is the most comprehensive resource in the field to date, integrating the most current theory, methodology, policy, and practical applications. Showcasing contributions from an international array of experts, the Handbook of Quantitative Finance and Risk Management is unparalleled in the breadth and depth of its coverage. Volume 1 presents an overview of quantitative finance and risk management research, covering the essential theories, policies, and empirical methodologies used in the field. Chapters provide in-depth discussion of portfolio theory and investment analysis. Volume 2 covers options and option pricing theory and risk management. Volume 3 presents a wide variety of models and analytical tools. Throughout, the handbook offers illustrative case examples, worked equations, and extensive references; additional features include chapter abstracts, keywords, and author and subject indices. From "arbitrage" to "yield spreads," the Handbook of Quantitative Finance and Risk Management will serve as an essential resource for academics, educators, students, policymakers, and practitioners.

The Valuation of American Call Options and the Expected Ex-dividend Stock Price Decline

Author : Giovanni Barone Adesi
Publisher :
ISBN 13 :
Total Pages : 52 pages
Book Rating : 4.:/5 (378 download)

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Book Synopsis The Valuation of American Call Options and the Expected Ex-dividend Stock Price Decline by : Giovanni Barone Adesi

Download or read book The Valuation of American Call Options and the Expected Ex-dividend Stock Price Decline written by Giovanni Barone Adesi and published by . This book was released on 1985 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Forecasting Volatility in the Financial Markets

Author : Stephen Satchell
Publisher : Elsevier
ISBN 13 : 0080471420
Total Pages : 428 pages
Book Rating : 4.0/5 (84 download)

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Book Synopsis Forecasting Volatility in the Financial Markets by : Stephen Satchell

Download or read book Forecasting Volatility in the Financial Markets written by Stephen Satchell and published by Elsevier. This book was released on 2011-02-24 with total page 428 pages. Available in PDF, EPUB and Kindle. Book excerpt: Forecasting Volatility in the Financial Markets, Third Edition assumes that the reader has a firm grounding in the key principles and methods of understanding volatility measurement and builds on that knowledge to detail cutting-edge modelling and forecasting techniques. It provides a survey of ways to measure risk and define the different models of volatility and return. Editors John Knight and Stephen Satchell have brought together an impressive array of contributors who present research from their area of specialization related to volatility forecasting. Readers with an understanding of volatility measures and risk management strategies will benefit from this collection of up-to-date chapters on the latest techniques in forecasting volatility. Chapters new to this third edition:* What good is a volatility model? Engle and Patton* Applications for portfolio variety Dan diBartolomeo* A comparison of the properties of realized variance for the FTSE 100 and FTSE 250 equity indices Rob Cornish* Volatility modeling and forecasting in finance Xiao and Aydemir* An investigation of the relative performance of GARCH models versus simple rules in forecasting volatility Thomas A. Silvey Leading thinkers present newest research on volatility forecasting International authors cover a broad array of subjects related to volatility forecasting Assumes basic knowledge of volatility, financial mathematics, and modelling

Pricing Derivative Securities

Author : T. W. Epps
Publisher : World Scientific
ISBN 13 : 9812700331
Total Pages : 644 pages
Book Rating : 4.8/5 (127 download)

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Book Synopsis Pricing Derivative Securities by : T. W. Epps

Download or read book Pricing Derivative Securities written by T. W. Epps and published by World Scientific. This book was released on 2007 with total page 644 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book presents techniques for valuing derivative securities at a level suitable for practitioners, students in doctoral programs in economics and finance, and those in masters-level programs in financial mathematics and computational finance. It provides the necessary mathematical tools from analysis, probability theory, the theory of stochastic processes, and stochastic calculus, making extensive use of examples. It also covers pricing theory, with emphasis on martingale methods. The chapters are organized around the assumptions made about the dynamics of underlying price processes. Readers begin with simple, discrete-time models that require little mathematical sophistication, proceed to the basic Black-Scholes theory, and then advance to continuous-time models with multiple risk sources. The second edition takes account of the major developments in the field since 2000. New topics include the use of simulation to price American-style derivatives, a new one-step approach to pricing options by inverting characteristic functions, and models that allow jumps in volatility and Markov-driven changes in regime. The new chapter on interest-rate derivatives includes extensive coverage of the LIBOR market model and an introduction to the modeling of credit risk. As a supplement to the text, the book contains an accompanying CD-ROM with user-friendly FORTRAN, C++, and VBA program components.

American Options with Stochastic Dividends and Volatility

Author : Mark Broadie
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis American Options with Stochastic Dividends and Volatility by : Mark Broadie

Download or read book American Options with Stochastic Dividends and Volatility written by Mark Broadie and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we consider American option contracts when the underlying asset has stochastic dividends and stochastic volatility. We provide a full discussion of the theoretical foundations of American option valuation and exercise boundaries. We show how they depend on the various sources of uncertainty which drive dividend rates and volatility, and derive equilibrium asset prices, derivative prices and optimal exercise boundaries in a general equilibrium model. The theoretical models yield fairly complex expressions which are difficult to estimate. We therefore adopt a nonparametric approach which enables us to investigate reduced forms. Indeed, we use nonparametric methods to estimate call prices and exercise boundaries conditional on dividends and volatility. Since the latter is a latent process, we propose several approaches, notably using EGARCH filtered estimates, implied and historical volatilities. The nonparametric approach allows us to test whether call prices and exercise decisions are primarily driven by dividends, as has been advocated by Harvey and Whaley (1992a,b) and Fleming and Whaley (1994) for the OEX contract, or whether stochastic volatility complements dividend uncertainty. We find that dividends alone do not account for all aspects of call option pricing and exercise decisions, suggesting a need to include stochastic volatility.

The Evaluation of American Compound Option Prices under Stochastic Volatility Using the Sparse Grid Approach

Author : Carl Chiarella
Publisher :
ISBN 13 :
Total Pages : 19 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis The Evaluation of American Compound Option Prices under Stochastic Volatility Using the Sparse Grid Approach by : Carl Chiarella

Download or read book The Evaluation of American Compound Option Prices under Stochastic Volatility Using the Sparse Grid Approach written by Carl Chiarella and published by . This book was released on 2009 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt: A compound option (the mother option) gives the holder the right, but not obligation to buy (long) or sell (short) the underlying option (the daughter option). In this paper, we demonstrate a partial differential equation (PDE) approach to pricing American-type compound options where the underlying dynamics follow Heston's stochastic volatility model. This price is formulated as the solution to a two-pass free boundary PDE problem. A modified sparse grid approach is implemented to solve the PDEs, which is shown to be accurate and efficient compared with the results from Monte Carlo simulation combined with the Method of Lines.