The Maximum Entropy Distribution Of An Asset Inferred From Option Prices

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The Maximum Entropy Distribution of an Asset Inferred from Option Prices

Author : Peter W. Buchen
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)

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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.

Maximum Entropy Distributions Inferred from Option Portfolios on an Asset

Author : Cassio Neri
Publisher :
ISBN 13 :
Total Pages : 23 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Maximum Entropy Distributions Inferred from Option Portfolios on an Asset by : Cassio Neri

Download or read book Maximum Entropy Distributions Inferred from Option Portfolios on an Asset written by Cassio Neri and published by . This book was released on 2014 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: We obtain the maximum entropy distribution for an asset from call and digital option prices. A rigorous mathematical proof of its existence and exponential form is given, which can also be applied to legitimise a formal derivation by Buchen and Kelly (JFQA 31:143-159, 1996). We give a simple and robust algorithm for our method and compare our results to theirs. We present numerical results which show that our approach implies very realistic volatility surfaces even when calibrating only to at-the-money options. Finally, we apply our approach to options on the S&P 500 index.

Probability Distributions of Assets Inferred from Option Prices Via the Principle of Maximum Entropy

Author : Jonathan Borwein
Publisher :
ISBN 13 :
Total Pages : 19 pages
Book Rating : 4.:/5 (634 download)

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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:

Estimation of the Asset Price Distribution Using the Maximum Entropy Principle

Author : Geon Ho Choe
Publisher :
ISBN 13 :
Total Pages : 18 pages
Book Rating : 4.:/5 (129 download)

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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.

Asset Price Dynamics, Volatility, and Prediction

Author : Stephen J. Taylor
Publisher : Princeton University Press
ISBN 13 : 1400839254
Total Pages : 544 pages
Book Rating : 4.4/5 (8 download)

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Book Synopsis Asset Price Dynamics, Volatility, and Prediction by : Stephen J. Taylor

Download or read book Asset Price Dynamics, Volatility, and Prediction written by Stephen J. Taylor and published by Princeton University Press. This book was released on 2011-02-11 with total page 544 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book shows how current and recent market prices convey information about the probability distributions that govern future prices. Moving beyond purely theoretical models, Stephen Taylor applies methods supported by empirical research of equity and foreign exchange markets to show how daily and more frequent asset prices, and the prices of option contracts, can be used to construct and assess predictions about future prices, their volatility, and their probability distributions. Stephen Taylor provides a comprehensive introduction to the dynamic behavior of asset prices, relying on finance theory and statistical evidence. He uses stochastic processes to define mathematical models for price dynamics, but with less mathematics than in alternative texts. The key topics covered include random walk tests, trading rules, ARCH models, stochastic volatility models, high-frequency datasets, and the information that option prices imply about volatility and distributions. Asset Price Dynamics, Volatility, and Prediction is ideal for students of economics, finance, and mathematics who are studying financial econometrics, and will enable researchers to identify and apply appropriate models and methods. It will likewise be a valuable resource for quantitative analysts, fund managers, risk managers, and investors who seek realistic expectations about future asset prices and the risks to which they are exposed.

Option Pricing Models and Volatility Using Excel-VBA

Author : Fabrice D. Rouah
Publisher : John Wiley & Sons
ISBN 13 : 1118429206
Total Pages : 456 pages
Book Rating : 4.1/5 (184 download)

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Book Synopsis Option Pricing Models and Volatility Using Excel-VBA by : Fabrice D. Rouah

Download or read book Option Pricing Models and Volatility Using Excel-VBA written by Fabrice D. Rouah and published by John Wiley & Sons. This book was released on 2012-06-15 with total page 456 pages. Available in PDF, EPUB and Kindle. Book excerpt: This comprehensive guide offers traders, quants, and students the tools and techniques for using advanced models for pricing options. The accompanying website includes data files, such as options prices, stock prices, or index prices, as well as all of the codes needed to use the option and volatility models described in the book. Praise for Option Pricing Models & Volatility Using Excel-VBA "Excel is already a great pedagogical tool for teaching option valuation and risk management. But the VBA routines in this book elevate Excel to an industrial-strength financial engineering toolbox. I have no doubt that it will become hugely successful as a reference for option traders and risk managers." —Peter Christoffersen, Associate Professor of Finance, Desautels Faculty of Management, McGill University "This book is filled with methodology and techniques on how to implement option pricing and volatility models in VBA. The book takes an in-depth look into how to implement the Heston and Heston and Nandi models and includes an entire chapter on parameter estimation, but this is just the tip of the iceberg. Everyone interested in derivatives should have this book in their personal library." —Espen Gaarder Haug, option trader, philosopher, and author of Derivatives Models on Models "I am impressed. This is an important book because it is the first book to cover the modern generation of option models, including stochastic volatility and GARCH." —Steven L. Heston, Assistant Professor of Finance, R.H. Smith School of Business, University of Maryland

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.

Rethinking Valuation and Pricing Models

Author : Carsten Wehn
Publisher : Academic Press
ISBN 13 : 0124158889
Total Pages : 657 pages
Book Rating : 4.1/5 (241 download)

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Book Synopsis Rethinking Valuation and Pricing Models by : Carsten Wehn

Download or read book Rethinking Valuation and Pricing Models written by Carsten Wehn and published by Academic Press. This book was released on 2012-12-17 with total page 657 pages. Available in PDF, EPUB and Kindle. Book excerpt: It is widely acknowledged that many financial modelling techniques failed during the financial crisis, and in our post-crisis environment many techniques are being reconsidered. This single volume provides a guide to lessons learned for practitioners and a reference for academics. Including reviews of traditional approaches, real examples, and case studies, contributors consider portfolio theory; methods for valuing equities and equity derivatives, interest rate derivatives, and hybrid products; and techniques for calculating risks and implementing investment strategies. Describing new approaches without losing sight of their classical antecedents, this collection of original articles presents a timely perspective on our post-crisis paradigm. Highlights pre-crisis best classical practices, identifies post-crisis key issues, and examines emerging approaches to solving those issues Singles out key factors one must consider when valuing or calculating risks in the post-crisis environment Presents material in a homogenous, practical, clear, and not overly technical manner

Mathematical and Statistical Methods for Actuarial Sciences and Finance

Author : Marco Corazza
Publisher : Springer
ISBN 13 : 3319898248
Total Pages : 465 pages
Book Rating : 4.3/5 (198 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. This book was released on 2018-07-17 with total page 465 pages. Available in PDF, EPUB and Kindle. Book excerpt: The interaction between mathematicians, statisticians and econometricians working in actuarial sciences and finance is producing numerous meaningful scientific results. This volume introduces new ideas, in the form of four-page papers, presented at the international conference Mathematical and Statistical Methods for Actuarial Sciences and Finance (MAF), held at Universidad Carlos III de Madrid (Spain), 4th-6th April 2018. The book covers a wide variety of subjects in actuarial science and financial fields, all discussed in the context of the cooperation between the three quantitative approaches. The topics include: actuarial models; analysis of high frequency financial data; behavioural finance; carbon and green finance; credit risk methods and models; dynamic optimization in finance; financial econometrics; forecasting of dynamical actuarial and financial phenomena; fund performance evaluation; insurance portfolio risk analysis; interest rate models; longevity risk; machine learning and soft-computing in finance; management in insurance business; models and methods for financial time series analysis, models for financial derivatives; multivariate techniques for financial markets analysis; optimization in insurance; pricing; probability in actuarial sciences, insurance and finance; real world finance; risk management; solvency analysis; sovereign risk; static and dynamic portfolio selection and management; trading systems. This book is a valuable resource for academics, PhD students, practitioners, professionals and researchers, and is also of interest to other readers with quantitative background knowledge.

Numerical Methods for Finance

Author : John Miller
Publisher : CRC Press
ISBN 13 : 1584889268
Total Pages : 312 pages
Book Rating : 4.5/5 (848 download)

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Book Synopsis Numerical Methods for Finance by : John Miller

Download or read book Numerical Methods for Finance written by John Miller and published by CRC Press. This book was released on 2007-09-21 with total page 312 pages. Available in PDF, EPUB and Kindle. Book excerpt: Featuring international contributors from both industry and academia, Numerical Methods for Finance explores new and relevant numerical methods for the solution of practical problems in finance. It is one of the few books entirely devoted to numerical methods as applied to the financial field. Presenting state-of-the-art methods in this area

International Conference of Computational Methods in Sciences and Engineering (ICCMSE 2004)

Author : Theodore Simos
Publisher : CRC Press
ISBN 13 : 1482284200
Total Pages : 1192 pages
Book Rating : 4.4/5 (822 download)

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Book Synopsis International Conference of Computational Methods in Sciences and Engineering (ICCMSE 2004) by : Theodore Simos

Download or read book International Conference of Computational Methods in Sciences and Engineering (ICCMSE 2004) written by Theodore Simos and published by CRC Press. This book was released on 2019-04-29 with total page 1192 pages. Available in PDF, EPUB and Kindle. Book excerpt: The International Conference of Computational Methods in Sciences and Engineering (ICCMSE) is unique in its kind. It regroups original contributions from all fields of the traditional Sciences, Mathematics, Physics, Chemistry, Biology, Medicine and all branches of Engineering. The aim of the conference is to bring together computational scientists from several disciplines in order to share methods and ideas. More than 370 extended abstracts have been submitted for consideration for presentation in ICCMSE 2004. From these, 289 extended abstracts have been selected after international peer review by at least two independent reviewers.

Pricing Derivative Securities

Author : Eliezer Z. Prisman
Publisher : Academic Press
ISBN 13 : 9780125649155
Total Pages : 788 pages
Book Rating : 4.6/5 (491 download)

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Book Synopsis Pricing Derivative Securities by : Eliezer Z. Prisman

Download or read book Pricing Derivative Securities written by Eliezer Z. Prisman and published by Academic Press. This book was released on 2000-09-14 with total page 788 pages. Available in PDF, EPUB and Kindle. Book excerpt: CD-ROM contains: MAPLE student version 5.0; online version of text; MATLAB GUI; IDEAL software (embedded in online text).

Handbook of Heavy Tailed Distributions in Finance

Author : S.T Rachev
Publisher : Elsevier
ISBN 13 : 0080557732
Total Pages : 707 pages
Book Rating : 4.0/5 (85 download)

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Book Synopsis Handbook of Heavy Tailed Distributions in Finance by : S.T Rachev

Download or read book Handbook of Heavy Tailed Distributions in Finance written by S.T Rachev and published by Elsevier. This book was released on 2003-03-05 with total page 707 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Handbooks in Finance are intended to be a definitive source for comprehensive and accessible information in the field of finance. Each individual volume in the series should present an accurate self-contained survey of a sub-field of finance, suitable for use by finance and economics professors and lecturers, professional researchers, graduate students and as a teaching supplement. The goal is to have a broad group of outstanding volumes in various areas of finance. The Handbook of Heavy Tailed Distributions in Finance is the first handbook to be published in this series. This volume presents current research focusing on heavy tailed distributions in finance. The contributions cover methodological issues, i.e., probabilistic, statistical and econometric modelling under non- Gaussian assumptions, as well as the applications of the stable and other non -Gaussian models in finance and risk management.

Credit Correlation

Author : Alexander Lipton
Publisher : World Scientific
ISBN 13 : 9812709495
Total Pages : 178 pages
Book Rating : 4.8/5 (127 download)

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Book Synopsis Credit Correlation by : Alexander Lipton

Download or read book Credit Correlation written by Alexander Lipton and published by World Scientific. This book was released on 2008 with total page 178 pages. Available in PDF, EPUB and Kindle. Book excerpt: The recent growth of credit derivatives has been explosive. The global credit derivatives market grew in notional value from $1 trillion to $20 trillion from 2000 to 2006. However, understanding the true nature of these instruments still poses both theoretical and practical challenges. For a long time now, the framework of Gaussian copulas parameterized by correlation, and more recently base correlation, has provided an adequate, if unintuitive, description of the market. However, the increased liquidity in credit indices and index tranches, as well as the proliferation of exotic instruments such as forward starting tranches, options on tranches, leveraged super senior tranches, and the like, have made it imperative to come up with models that describe market reality better.This book, originally and concurrently published in the International Journal of Theoretical and Applied Finance, Vol. 10, No. 4, 2007, agrees that base correlation has outlived its usefulness; opinions of how to replace it, however, are divided. Both the top-down and bottom-up approaches for describing the dynamics of credit baskets are presented, and pro and contra arguments are put forward. Readers will decide which direction is the most promising one at the moment. However, it is hoped that, in the near future, models that transcend base correlation will be proposed and accepted by the market.

Applied and Industrial Mathematics, Venice—2, 1998

Author : Renato Spigler
Publisher : Springer Science & Business Media
ISBN 13 : 9401141932
Total Pages : 298 pages
Book Rating : 4.4/5 (11 download)

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Book Synopsis Applied and Industrial Mathematics, Venice—2, 1998 by : Renato Spigler

Download or read book Applied and Industrial Mathematics, Venice—2, 1998 written by Renato Spigler and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 298 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this volume, I have collected several papers which were presented at the international conference called "Venice-2/Symposium on Applied and In dustrial Mathematics". Such a conference was held in Venice, Italy, between June 11 and 16,1998, and was intended as the follow-up of the very successful similar event (called "Venice-1/Symposium on Applied and Industrial Math ematics"), that was also organized in Venice in October 1989. The Venice-1 conference ended up with a Kluwer volume like this one. I am grateful to Kluwer for having accepted to publish the present volume, the aim of which is to update somehow the state-of-the-art in the field of Ap plied Mathematics as well as in that of the nowadays rather more developed area of Industrial Mathematics. The most of the invited (key-note) speakers contributed to this volume with a paper related to their talk. There are, in addition·, a few significant contributed papers, selected on the basis of their quality and relevance to the present-time research activities. The topics considered in the conference range from rather general sub jects in applied and numerical analysis, to more specialized subjects such as polymers and disordered media, granular flow, semiconductor mathematics, superconductors, elasticity, tomography and other inverse problems, financial modeling, photographic sciences, etc. The papers collected in this volume provide a selection of them. It is clear from the previous list that some attention has been paid to relatively new and emerging fields.

Quantitative Analysis In Financial Markets: Collected Papers Of The New York University Mathematical Finance Seminar (Vol Ii)

Author : Marco Avellaneda
Publisher : World Scientific
ISBN 13 : 9814493562
Total Pages : 379 pages
Book Rating : 4.8/5 (144 download)

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Book Synopsis Quantitative Analysis In Financial Markets: Collected Papers Of The New York University Mathematical Finance Seminar (Vol Ii) by : Marco Avellaneda

Download or read book Quantitative Analysis In Financial Markets: Collected Papers Of The New York University Mathematical Finance Seminar (Vol Ii) written by Marco Avellaneda and published by World Scientific. This book was released on 2001-01-10 with total page 379 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book contains lectures delivered at the celebrated Seminar in Mathematical Finance at the Courant Institute. The lecturers and presenters of papers are prominent researchers and practitioners in the field of quantitative financial modeling. Most are faculty members at leading universities or Wall Street practitioners.The lectures deal with the emerging science of pricing and hedging derivative securities and, more generally, managing financial risk. Specific articles concern topics such as option theory, dynamic hedging, interest-rate modeling, portfolio theory, price forecasting using statistical methods, etc.

The Option-iPoD

Author : Christian Capuano
Publisher : International Monetary Fund
ISBN 13 : 1451870523
Total Pages : 31 pages
Book Rating : 4.4/5 (518 download)

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Book Synopsis The Option-iPoD by : Christian Capuano

Download or read book The Option-iPoD written by Christian Capuano and published by International Monetary Fund. This book was released on 2008-08-01 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present a framework to derive the probability of default implied by the price of equity options. The framework does not require any strong statistical assumption, and provide results that are informative on the expected developments of balance sheet variables, such as assets, equity and leverage, and on the Greek letters (delta, gamma and vega). We show how to extend the framework by using information from the price of a zero-coupon bond and CDS-spreads. In the episode of the collapse of Bear Stearns, option-iPoD was able to early signal market sentiment.