Empirical Performance Of Models For Valuation And Risk Management Of Barrier Options

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Empirical Performance of Models for Valuation and Risk-Management of Barrier Options

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

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Book Synopsis Empirical Performance of Models for Valuation and Risk-Management of Barrier Options by : Cathrine Jessen

Download or read book Empirical Performance of Models for Valuation and Risk-Management of Barrier Options written by Cathrine Jessen and published by . This book was released on 2009 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper the empirical performance of alternative models for barrier option valuation and risk management is studied. Five commonly used models are compared: the Black-Scholes model, the constant elasticity of variance model, the Heston stochastic volatility model, the Merton jump-diffusion model, and the infinite activity Variance Gamma model. We employ time-series data from the USD/EUR exchange rate market, and use plain vanilla option prices as well as a unique data-set of observed market values of barrier options. The different models are calibrated to the plain vanilla option prices, and cross-sectional and predicted pricing errors for both plain vanilla and barrier options are investigated. For the plain vanilla options the Heston model has superior performance both in cross-section and for prediction horizons of up to one month, with its closest competitors being the Merton and the Variance Gamma models. For the barrier options, the Heston model has a slightly, but not significantly, better performance than the continuous alternatives Black-Scholes and constant elasticity of variance, while both models with jumps(Merton and Variance Gamma) perform markedly worse.

Valuation, Empirical Analysis, and Optimal Exercise of Open-End Turbo Certificates

Author : Sebastian Paik
Publisher : University of Bamberg Press
ISBN 13 : 3863091787
Total Pages : 365 pages
Book Rating : 4.8/5 (63 download)

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Book Synopsis Valuation, Empirical Analysis, and Optimal Exercise of Open-End Turbo Certificates by : Sebastian Paik

Download or read book Valuation, Empirical Analysis, and Optimal Exercise of Open-End Turbo Certificates written by Sebastian Paik and published by University of Bamberg Press. This book was released on 2014 with total page 365 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Lie Algebraic Approach for Pricing Moving Barrier Options with Time-Dependent Parameters

Author : Chi-Fai Lo
Publisher :
ISBN 13 :
Total Pages : 10 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Lie Algebraic Approach for Pricing Moving Barrier Options with Time-Dependent Parameters by : Chi-Fai Lo

Download or read book Lie Algebraic Approach for Pricing Moving Barrier Options with Time-Dependent Parameters written by Chi-Fai Lo and published by . This book was released on 2007 with total page 10 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we apply the Lie-algebraic technique for the valuation of moving barrier options with time-dependent parameters. The value of the underlying asset is assumed to follow the constant elasticity of variance (CEV) process. By exploiting the dynamical symmetry of the pricing partial differential equations, the new approach enables us to derive the analytical kernels of the pricing formulae straightforwardly, and thus provides an efficient way for computing the prices of the moving barrier options. The method is also able to provide tight upper and lower bounds for the exact prices of CEV barrier options with fixed barriers.In view of the CEV model being empirically considered to be a better candidate in equity option pricing than the traditional Black-Scholes model, our new approach could facilitate more efficient comparative pricing and precise risk management in equity derivatives with barriers by incorporating term-structures of interest rates, volatility and dividend into the CEV option valuation model.

Model Risk and Model Choice in the Case of Barrier Options

Author : Rainer Baule
Publisher :
ISBN 13 :
Total Pages : 48 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Model Risk and Model Choice in the Case of Barrier Options by : Rainer Baule

Download or read book Model Risk and Model Choice in the Case of Barrier Options written by Rainer Baule and published by . This book was released on 2019 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze model risk for the pricing of barrier options. In contrast to existing literature, this paper is based on an empirical data set of over 40,000 bonus certificates to analyze the real market extent of model risk for traded barrier options instead of purely synthetic options. For this purpose a local volatility model, the Heston model and the Bates model are applied. Furthermore, we add to the literature on the behavior of issuers of retail derivatives in terms of model choice. We find evidence that the majority of the issuers prefer stochastic volatility over local volatility models, while they do not use the even more realistic Bates model which incorporates jumps in the underlying.

Numerical Methods and Optimization in Finance

Author : Manfred Gilli
Publisher : Academic Press
ISBN 13 : 0128150653
Total Pages : 638 pages
Book Rating : 4.1/5 (281 download)

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Book Synopsis Numerical Methods and Optimization in Finance by : Manfred Gilli

Download or read book Numerical Methods and Optimization in Finance written by Manfred Gilli and published by Academic Press. This book was released on 2019-08-30 with total page 638 pages. Available in PDF, EPUB and Kindle. Book excerpt: Computationally-intensive tools play an increasingly important role in financial decisions. Many financial problems-ranging from asset allocation to risk management and from option pricing to model calibration-can be efficiently handled using modern computational techniques. Numerical Methods and Optimization in Finance presents such computational techniques, with an emphasis on simulation and optimization, particularly so-called heuristics. This book treats quantitative analysis as an essentially computational discipline in which applications are put into software form and tested empirically. This revised edition includes two new chapters, a self-contained tutorial on implementing and using heuristics, and an explanation of software used for testing portfolio-selection models. Postgraduate students, researchers in programs on quantitative and computational finance, and practitioners in banks and other financial companies can benefit from this second edition of Numerical Methods and Optimization in Finance. Introduces numerical methods to readers with economics backgrounds Emphasizes core simulation and optimization problems Includes MATLAB and R code for all applications, with sample code in the text and freely available for download

On the Valuation of Fader and Discrete Barrier Options in Heston's Stochastic Volatility Model

Author : Susanne Griebsch
Publisher :
ISBN 13 :
Total Pages : 33 pages
Book Rating : 4.:/5 (34 download)

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Book Synopsis On the Valuation of Fader and Discrete Barrier Options in Heston's Stochastic Volatility Model by : Susanne Griebsch

Download or read book On the Valuation of Fader and Discrete Barrier Options in Heston's Stochastic Volatility Model written by Susanne Griebsch and published by . This book was released on 2008 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Valuation of Barrier Options in a Black-Scholes Setup with Jump Risk

Author : Dietmar Leisen
Publisher :
ISBN 13 :
Total Pages : 28 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Valuation of Barrier Options in a Black-Scholes Setup with Jump Risk by : Dietmar Leisen

Download or read book Valuation of Barrier Options in a Black-Scholes Setup with Jump Risk written by Dietmar Leisen and published by . This book was released on 2001 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper discusses the pitfalls in the pricing of barrier options approximations of the underlying continuous processes via discrete lattice models. These problems are studied first in a Black-Scholes model. Improvements result from a trinomial model and a further modified model where price changes occur at the jump times of a Poisson process. After the numerical difficulties have been resolved in the Black-Scholes model, unpredictable discontinuous price movements are incorporated.

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.

An Empirical Examination of the Longstaff-Schwartz Bond Option Valuation Model

Author : Marliese Uhrig-Homburg
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis An Empirical Examination of the Longstaff-Schwartz Bond Option Valuation Model by : Marliese Uhrig-Homburg

Download or read book An Empirical Examination of the Longstaff-Schwartz Bond Option Valuation Model written by Marliese Uhrig-Homburg and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This article examines the suitability of the Longstaff-Schwartz two-factor model for practical use. Discussion of issues related to the implementation of the model addresses the problem of fitting the model to the initial term structure of interest rates. To assess empirical performance, the Longstaff-Schwartz model is used to value German interest rate warrants for the four-year period 1990-1993. The data set includes options with longer maturities, which are of particular interest for testing bond option pricing models. A three-step procedure is used. In the first step, the current term structure of interest rates is estimated. In the second step, the constant parameters of the model are determined, and the model is calibrated to the initial yield curve. In the final step, the theoretical values of the interest rate warrants are computed and compared with their market prices. The empirical results indicate that the Longstaff-Schwartz two-factor model has considerable predictive ability, although parameter estimation turns out to be time- consuming.

Pricing, Loss and Sensitivity Analysis of Barrier Options Via Regression

Author : Andreas Gabler
Publisher :
ISBN 13 :
Total Pages : 25 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Pricing, Loss and Sensitivity Analysis of Barrier Options Via Regression by : Andreas Gabler

Download or read book Pricing, Loss and Sensitivity Analysis of Barrier Options Via Regression written by Andreas Gabler and published by . This book was released on 2018 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: Monte Carlo simulation methods for the valuation of financial instruments have become a staple of empirical economic analysis. A specific focus is dedicated to the feasibility of the stock price losses and barrier options as well as the sensitivity of partial time barrier options in dependence on their barrier values, which, to the best of our knowledge, hasn't been analysed in academic papers so far. This paper compares the performance of analytical results with empirical regression-based Monte Carlo outcomes, as proposed by Broadie et. al. (2015), where outer stage samples are used to generate financial risk factors and an inner stage simulation is applied to price the barrier options given the outer stage scenarios. Furthermore, potential correlation characteristics between portfolio pricing and loss regarding infinitesimal small changes in the underlying asset (Delta) are exhibited. Thus, a theoretical assumption approach to the explicit loss function is considered, as yet such an analytical loss function has not occurred in related literature.

Handbook Of Financial Econometrics, Mathematics, Statistics, And Machine Learning (In 4 Volumes)

Author : Cheng Few Lee
Publisher : World Scientific
ISBN 13 : 9811202400
Total Pages : 5053 pages
Book Rating : 4.8/5 (112 download)

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Book Synopsis Handbook Of Financial Econometrics, Mathematics, Statistics, And Machine Learning (In 4 Volumes) by : Cheng Few Lee

Download or read book Handbook Of Financial Econometrics, Mathematics, Statistics, And Machine Learning (In 4 Volumes) written by Cheng Few Lee and published by World Scientific. This book was released on 2020-07-30 with total page 5053 pages. Available in PDF, EPUB and Kindle. Book excerpt: This four-volume handbook covers important concepts and tools used in the fields of financial econometrics, mathematics, statistics, and machine learning. Econometric methods have been applied in asset pricing, corporate finance, international finance, options and futures, risk management, and in stress testing for financial institutions. This handbook discusses a variety of econometric methods, including single equation multiple regression, simultaneous equation regression, and panel data analysis, among others. It also covers statistical distributions, such as the binomial and log normal distributions, in light of their applications to portfolio theory and asset management in addition to their use in research regarding options and futures contracts.In both theory and methodology, we need to rely upon mathematics, which includes linear algebra, geometry, differential equations, Stochastic differential equation (Ito calculus), optimization, constrained optimization, and others. These forms of mathematics have been used to derive capital market line, security market line (capital asset pricing model), option pricing model, portfolio analysis, and others.In recent times, an increased importance has been given to computer technology in financial research. Different computer languages and programming techniques are important tools for empirical research in finance. Hence, simulation, machine learning, big data, and financial payments are explored in this handbook.Led by Distinguished Professor Cheng Few Lee from Rutgers University, this multi-volume work integrates theoretical, methodological, and practical issues based on his years of academic and industry experience.

The Volatility Surface

Author : Jim Gatheral
Publisher : Wiley
ISBN 13 : 0470068256
Total Pages : 208 pages
Book Rating : 4.4/5 (7 download)

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Book Synopsis The Volatility Surface by : Jim Gatheral

Download or read book The Volatility Surface written by Jim Gatheral and published by Wiley. This book was released on 2006-09-18 with total page 208 pages. Available in PDF, EPUB and Kindle. Book excerpt: Praise for The Volatility Surface "I'm thrilled by the appearance of Jim Gatheral's new book The Volatility Surface. The literature on stochastic volatility is vast, but difficult to penetrate and use. Gatheral's book, by contrast, is accessible and practical. It successfully charts a middle ground between specific examples and general models--achieving remarkable clarity without giving up sophistication, depth, or breadth." --Robert V. Kohn, Professor of Mathematics and Chair, Mathematical Finance Committee, Courant Institute of Mathematical Sciences, New York University "Concise yet comprehensive, equally attentive to both theory and phenomena, this book provides an unsurpassed account of the peculiarities of the implied volatility surface, its consequences for pricing and hedging, and the theories that struggle to explain it." --Emanuel Derman, author of My Life as a Quant "Jim Gatheral is the wiliest practitioner in the business. This very fine book is an outgrowth of the lecture notes prepared for one of the most popular classes at NYU's esteemed Courant Institute. The topics covered are at the forefront of research in mathematical finance and the author's treatment of them is simply the best available in this form." --Peter Carr, PhD, head of Quantitative Financial Research, Bloomberg LP Director of the Masters Program in Mathematical Finance, New York University "Jim Gatheral is an acknowledged master of advanced modeling for derivatives. In The Volatility Surface he reveals the secrets of dealing with the most important but most elusive of financial quantities, volatility." --Paul Wilmott, author and mathematician "As a teacher in the field of mathematical finance, I welcome Jim Gatheral's book as a significant development. Written by a Wall Street practitioner with extensive market and teaching experience, The Volatility Surface gives students access to a level of knowledge on derivatives which was not previously available. I strongly recommend it." --Marco Avellaneda, Director, Division of Mathematical Finance Courant Institute, New York University "Jim Gatheral could not have written a better book." --Bruno Dupire, winner of the 2006 Wilmott Cutting Edge Research Award Quantitative Research, Bloomberg LP

Derivatives and Risk Management:

Author : Madhumathi
Publisher : Pearson Education India
ISBN 13 : 9332506817
Total Pages : 542 pages
Book Rating : 4.3/5 (325 download)

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Book Synopsis Derivatives and Risk Management: by : Madhumathi

Download or read book Derivatives and Risk Management: written by Madhumathi and published by Pearson Education India. This book was released on 2011 with total page 542 pages. Available in PDF, EPUB and Kindle. Book excerpt: Through the incorporation of real-life examples from Indian organizations, Derivatives and Risk Management provides cutting-edge material comprising new and unique study tools and fresh, thought-provoking content. The organization of the text is designed to conceptually link a firm’s actions to its value as determined in the derivatives market. It addresses the specific needs of Indian students and managers by successfully blending the best global derivatives and risk management practices with an in-depth coverage of the Indian environment.

Market-Conform Valuation of Options

Author : Tobias Herwig
Publisher : Taylor & Francis
ISBN 13 : 9783540308379
Total Pages : 120 pages
Book Rating : 4.3/5 (83 download)

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Book Synopsis Market-Conform Valuation of Options by : Tobias Herwig

Download or read book Market-Conform Valuation of Options written by Tobias Herwig and published by Taylor & Francis. This book was released on 2006-01-17 with total page 120 pages. Available in PDF, EPUB and Kindle. Book excerpt: The focus of this volume is on the development of new approaches for the market-conform valuation of newly issued derivatives. The first chapter presents a flexible approach to construct the binomial process of the underlying asset price by using a simultaneously backward and forward induction algorithm. This framework can be used to price and hedge a wide range of plain-vanilla and exotic options. In the second chapter this new approach is compared to existing models using a sample of plain-vanilla options, American call options and European Barrier options from two competing markets. In the third chapter new methods to value American-style options via Monte Carlo simulations in accordance with given market prices are discussed. After a short introduction to Monte Carlo methods, two new approaches are proposed. These new frameworks are illustrated via pricing examples for standard American put options.

Exotic Option Pricing and Advanced Lévy Models

Author : Andreas Kyprianou
Publisher : John Wiley & Sons
ISBN 13 : 0470017201
Total Pages : 344 pages
Book Rating : 4.4/5 (7 download)

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Book Synopsis Exotic Option Pricing and Advanced Lévy Models by : Andreas Kyprianou

Download or read book Exotic Option Pricing and Advanced Lévy Models written by Andreas Kyprianou and published by John Wiley & Sons. This book was released on 2006-06-14 with total page 344 pages. Available in PDF, EPUB and Kindle. Book excerpt: Since around the turn of the millennium there has been a general acceptance that one of the more practical improvements one may make in the light of the shortfalls of the classical Black-Scholes model is to replace the underlying source of randomness, a Brownian motion, by a Lévy process. Working with Lévy processes allows one to capture desirable distributional characteristics in the stock returns. In addition, recent work on Lévy processes has led to the understanding of many probabilistic and analytical properties, which make the processes attractive as mathematical tools. At the same time, exotic derivatives are gaining increasing importance as financial instruments and are traded nowadays in large quantities in OTC markets. The current volume is a compendium of chapters, each of which consists of discursive review and recent research on the topic of exotic option pricing and advanced Lévy markets, written by leading scientists in this field. In recent years, Lévy processes have leapt to the fore as a tractable mechanism for modeling asset returns. Exotic option values are especially sensitive to an accurate portrayal of these dynamics. This comprehensive volume provides a valuable service for financial researchers everywhere by assembling key contributions from the world's leading researchers in the field. Peter Carr, Head of Quantitative Finance, Bloomberg LP. This book provides a front-row seat to the hottest new field in modern finance: options pricing in turbulent markets. The old models have failed, as many a professional investor can sadly attest. So many of the brightest minds in mathematical finance across the globe are now in search of new, more accurate models. Here, in one volume, is a comprehensive selection of this cutting-edge research. Richard L. Hudson, former Managing Editor of The Wall Street Journal Europe, and co-author with Benoit B. Mandelbrot of The (Mis)Behaviour of Markets: A Fractal View of Risk, Ruin and Reward

Derivatives and Risk Management:

Author : Janakiramanan
Publisher : Pearson Education India
ISBN 13 : 9332501130
Total Pages : 542 pages
Book Rating : 4.3/5 (325 download)

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Book Synopsis Derivatives and Risk Management: by : Janakiramanan

Download or read book Derivatives and Risk Management: written by Janakiramanan and published by Pearson Education India. This book was released on 2011 with total page 542 pages. Available in PDF, EPUB and Kindle. Book excerpt: Derivatives and Risk Management provides readers with a thorough knowledge of the functions of derivatives and the many risks associated with their use. It covers particular derivative instruments available in India and the four types of derivatives. It is useful for postgraduate students of commerce, finance and management, fund managers, risk-management specialists, treasury managers, students taking the CFA examinations and anyone who wants to understand the derivatives market in India.

Valuation Approaches and Metrics

Author : Aswath Damodaran
Publisher : Now Publishers Inc
ISBN 13 : 1601980140
Total Pages : 102 pages
Book Rating : 4.6/5 (19 download)

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Book Synopsis Valuation Approaches and Metrics by : Aswath Damodaran

Download or read book Valuation Approaches and Metrics written by Aswath Damodaran and published by Now Publishers Inc. This book was released on 2005 with total page 102 pages. Available in PDF, EPUB and Kindle. Book excerpt: Valuation lies at the heart of much of what we do in finance, whether it is the study of market efficiency and questions about corporate governance or the comparison of different investment decision rules in capital budgeting. In this paper, we consider the theory and evidence on valuation approaches. We begin by surveying the literature on discounted cash flow valuation models, ranging from the first mentions of the dividend discount model to value stocks to the use of excess return models in more recent years. In the second part of the paper, we examine relative valuation models and, in particular, the use of multiples and comparables in valuation and evaluate whether relative valuation models yield more or less precise estimates of value than discounted cash flow models. In the final part of the paper, we set the stage for further research in valuation by noting the estimation challenges we face as companies globalize and become exposed to risk in multiple countries.