Volatility Estimation Techniques in the Pricing of Derivative Contracts PDF Download
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Author: Emilie Drop
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
The aim of this paper is to evaluate how different volatility estimation techniques impact the quality of pricing option contracts. The theoretical part explains option pricing, qualitative and quantitative parameters of the Black Scholes model, and implied volatility features. The pricing performance of the Black Scholes model with historical volatilities and of the ad hoc Black Scholes model with implied volatilities are assessed with Matlab, using a real option dataset consisting of S & P 500 call options. Moreover, the specification of the regression structure used in the ad hoc Black Scholes model to estimate volatility is analysed. It is shown that the absolute smile regression structure using strike price, time to maturity and their com- bination as independent variables for one-day ahead out of sample pricing is the most accurate technique for pricing options out of all the methods considered.
Author: Emilie Drop
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
The aim of this paper is to evaluate how different volatility estimation techniques impact the quality of pricing option contracts. The theoretical part explains option pricing, qualitative and quantitative parameters of the Black Scholes model, and implied volatility features. The pricing performance of the Black Scholes model with historical volatilities and of the ad hoc Black Scholes model with implied volatilities are assessed with Matlab, using a real option dataset consisting of S & P 500 call options. Moreover, the specification of the regression structure used in the ad hoc Black Scholes model to estimate volatility is analysed. It is shown that the absolute smile regression structure using strike price, time to maturity and their com- bination as independent variables for one-day ahead out of sample pricing is the most accurate technique for pricing options out of all the methods considered.
Author: Robert A. Jarrow
Publisher:
ISBN:
Category : Derivative securities
Languages : en
Pages : 472
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Book Description
Written by a number of authors, this text is aimed at market practitioners and applies the latest stochastic volatility research findings to the analysis of stock prices. It includes commentary and analysis based on real-life situations.
Author: Antoine Petrus Cornelius van der Ploeg
Publisher: Rozenberg Publishers
ISBN: 9051705778
Category :
Languages : en
Pages : 358
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Book Description
Author: Jiří Witzany
Publisher: Springer Nature
ISBN: 3030517519
Category : Business & Economics
Languages : en
Pages : 381
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Book Description
This book helps students, researchers and quantitative finance practitioners to understand both basic and advanced topics in the valuation and modeling of financial and commodity derivatives, their institutional framework and risk management. It provides an overview of the new regulatory requirements such as Basel III, the Fundamental Review of the Trading Book (FRTB), Interest Rate Risk of the Banking Book (IRRBB), or the Internal Capital Assessment Process (ICAAP). The reader will also find a detailed treatment of counterparty credit risk, stochastic volatility estimation methods such as MCMC and Particle Filters, and the concepts of model-free volatility, VIX index definition and the related volatility trading. The book can also be used as a teaching material for university derivatives and financial engineering courses.
Author: Yue Kuen Kwok
Publisher: CRC Press
ISBN: 1000584275
Category : Mathematics
Languages : en
Pages : 402
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Book Description
Pricing Models of Volatility Products and Exotic Variance Derivatives summarizes most of the recent research results in pricing models of derivatives on discrete realized variance and VIX. The book begins with the presentation of volatility trading and uses of variance derivatives. It then moves on to discuss the robust replication strategy of variance swaps using portfolio of options, which is one of the major milestones in pricing theory of variance derivatives. The replication procedure provides the theoretical foundation of the construction of VIX. This book provides sound arguments for formulating the pricing models of variance derivatives and establishes formal proofs of various technical results. Illustrative numerical examples are included to show accuracy and effectiveness of analytic and approximation methods. Features Useful for practitioners and quants in the financial industry who need to make choices between various pricing models of variance derivatives Fabulous resource for researchers interested in pricing and hedging issues of variance derivatives and VIX products Can be used as a university textbook in a topic course on pricing variance derivatives
Author: T. W. Epps
Publisher: World Scientific
ISBN: 9810242980
Category : Business & Economics
Languages : en
Pages : 712
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Book Description
Latest Edition: Pricing Derivative Securities (2nd Edition)The development of successful techniques for valuing derivative assets is among the most influential achievements of economic science. Pricing Derivative Securities presents the theory of financial derivatives in a way that emphasizes both its mathematical foundations and its practical implementation. The book's organization reveals its three distinctive features. Part I surveys the necessary tools of analysis, probability theory, and stochastic calculus, thus making the book self-contained. The chapters in Part II, Pricing Theory, are organized around the dynamics of the price processes of underlying assets, progressing from simple models to those that require considerable mathematical sophistication. The last part of the book is devoted to the empirical implementation of the pricing formulas developed in Part II, offering a detailed survey of numerical methods and providing a collection of programs in FORTRAN and C++.Errata(s)Preface, Page viChapter 13, Page 534?www.worldscientific.com/books/4415.zip? The above links should be replaced with?www.worldscientific.com/doi/suppl/10.1142/4415/suppl_file/4415_software_free.zip?Errata
Author: Emlyn James Flint
Publisher:
ISBN:
Category :
Languages : en
Pages : 54
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Book Description
Contemporary actuarial and accounting practices (APN 110 in the South African context) require the use of market-consistent models for the valuation of embedded investment derivatives. These models have to be calibrated with accurate and up-to-date market data. Arguably, the most important variable in the valuation of embedded equity derivatives is implied volatility. However, accurate long-term volatility estimation is difficult because of a general lack of tradable, liquid medium- and long-term derivative instruments, be they exchange-traded or over the counter. In South Africa, given the relatively short-term nature of the local derivatives market, this is of particular concern. This paper attempts to address this concern by (1) providing a comprehensive, critical evaluation of the long-term volatility models most commonly used in practice, encompassing simple historical volatility estimation and econometric, deterministic and stochastic volatility models; and (2) introducing several fairly recent nonparametric alternative methods for estimating long-term volatility, namely break-even volatility and canonical option valuation.The authors apply these various models and methodologies to South African market data, thus providing practical, long-term volatility estimates under each modelling framework whilst accounting for real-world difficulties and constraints. In so doing, they identify those models and methodologies they consider to be most suited to long-term volatility estimation and propose best estimation practices within each identified area. Thus, while application is restricted to the South African market, the general discussion, as well as the suggestion of best practice, in each of the evaluated modelling areas remains relevant for all long-term volatility estimation.
Author: Ibtissam Medarhri
Publisher:
ISBN: 9783841673442
Category :
Languages : en
Pages :
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Book Description
Author: Stephen Jewson
Publisher:
ISBN:
Category :
Languages : en
Pages : 35
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Book Description
Weather derivatives are financial contracts that allow entities to hedge themselves against the adverse impacts of fluctuations in the weather. The pricing of such contracts is based on a combination of actuarial and arbitrage methods. Risk management of portfolios of weather derivatives centres on the estimation of two distributions: the expiry distribution and the short term risk distribution. These distributions can be used to calculate the expiry VaR and the VaR, respectively. The expiry distribution can be estimated relatively easily using the actuarial methods used to price contracts and manage portfolios. The short term risk distribution, however, is much more difficult to estimate since it depends on market dynamics and the statistics of changes in probabilistic meteorological forecasts. Nevertheless, we show that, under certain reasonable assumptions, the short term risk distribution for a large class of standard contracts takes a particularly simple form. It depends on a single volatility that can be derived without having to perform any statistical analysis of past forecasts. In addition we show that the framework we develop for calculating the short term risk distribution leads to a simple method for the actuarial valuation of options during the contract period.
Author: Russell Rhoads
Publisher: John Wiley & Sons
ISBN: 0470933089
Category : Business & Economics
Languages : en
Pages : 293
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Book Description
A guide to using the VIX to forecast and trade markets Known as the fear index, the VIX provides a snapshot of expectations about future stock market volatility and generally moves inversely to the overall stock market. Trading VIX Derivatives will show you how to use the Chicago Board Options Exchange's S&P 500 volatility index to gauge fear and greed in the market, use market volatility to your advantage, and hedge stock portfolios. Engaging and informative, this book skillfully explains the mechanics and strategies associated with trading VIX options, futures, exchange traded notes, and options on exchange traded notes. Many market participants look at the VIX to help understand market sentiment and predict turning points. With a slew of VIX index trading products now available, traders can use a variety of strategies to speculate outright on the direction of market volatility, but they can also utilize these products in conjunction with other instruments to create spread trades or hedge their overall risk. Reviews how to use the VIX to forecast market turning points, as well as reveals what it takes to implement trading strategies using VIX options, futures, and ETNs Accessible to active individual traders, but sufficiently sophisticated for professional traders Offers insights on how volatility-based strategies can be used to provide diversification and enhance returns Written by Russell Rhoads, a top instructor at the CBOE's Options Institute, this book reflects on the wide range of uses associated with the VIX and will interest anyone looking for profitable new forecasting and trading techniques.
