Estimation of Smooth Volatility Functions in Option Pricing Models
Author: Yohan Kim
Publisher:
Published: 2001
Total Pages: 314
ISBN-13:
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Characteristic Function-Based Estimation of Affine Option Pricing Models
Author: Yannick Dillschneider
Publisher:
Published: 2019
Total Pages: 12
ISBN-13:
DOWNLOAD EBOOKIn this paper, we derive explicit expressions for certain joint moments of stock prices and option prices within a generic affine stochastic volatility model. Evaluation of each moment requires weighted inverse Fourier transformation of a function that is determined by the risk-neutral and real-world characteristic functions of the state vector. Explicit availability of such moment expressions allows to devise a novel GMM approach to jointly estimate real-world and risk-neutral parameters of affine stochastic volatility models using observed individual option prices. Moreover, the moment expressions may be used to include option price information into other existing moment-based estimation approaches.
Volatility
Author: Robert A. Jarrow
Publisher:
Published: 1998
Total Pages: 472
ISBN-13:
DOWNLOAD EBOOKWritten 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.
A Semiparametric Estimation of Liquidity Effects on Option Pricing
Author: Eva Ferreira
Publisher:
Published: 1999
Total Pages: 116
ISBN-13:
DOWNLOAD EBOOKEstimation of a Stochastic Volatility Model Using Pricing and Hedging Information
Author: Jason Fink
Publisher:
Published: 2005
Total Pages: 23
ISBN-13:
DOWNLOAD EBOOKEstimation of option pricing models in which the underlying asset exhibits stochastic volatility presents complicated econometric questions. One such question, thus far unstudied, is whether the inclusion of information derived from hedging relationships implied by an option pricing model may be used in conjunction with pricing information to provide more reliable parameter estimates than the use of pricing information alone. This paper estimates, using a simple least-squares procedure, the stochastic volatility model of Heston (1993), and includes hedging information in the objective function. This hedging information enters the objective function through a weighting parameter that is chosen optimally within the model. With the weight appropriately chosen, we find that incorporating the hedging information reduces both the out-of-sample hedging and pricing errors associated with the Heston model.
The Volatility Smile
Author: Emanuel Derman
Publisher: John Wiley & Sons
Published: 2016-08-15
Total Pages: 532
ISBN-13: 1118959175
DOWNLOAD EBOOKThe Volatility Smile The Black-Scholes-Merton option model was the greatest innovation of 20th century finance, and remains the most widely applied theory in all of finance. Despite this success, the model is fundamentally at odds with the observed behavior of option markets: a graph of implied volatilities against strike will typically display a curve or skew, which practitioners refer to as the smile, and which the model cannot explain. Option valuation is not a solved problem, and the past forty years have witnessed an abundance of new models that try to reconcile theory with markets. The Volatility Smile presents a unified treatment of the Black-Scholes-Merton model and the more advanced models that have replaced it. It is also a book about the principles of financial valuation and how to apply them. Celebrated author and quant Emanuel Derman and Michael B. Miller explain not just the mathematics but the ideas behind the models. By examining the foundations, the implementation, and the pros and cons of various models, and by carefully exploring their derivations and their assumptions, readers will learn not only how to handle the volatility smile but how to evaluate and build their own financial models. Topics covered include: The principles of valuation Static and dynamic replication The Black-Scholes-Merton model Hedging strategies Transaction costs The behavior of the volatility smile Implied distributions Local volatility models Stochastic volatility models Jump-diffusion models The first half of the book, Chapters 1 through 13, can serve as a standalone textbook for a course on option valuation and the Black-Scholes-Merton model, presenting the principles of financial modeling, several derivations of the model, and a detailed discussion of how it is used in practice. The second half focuses on the behavior of the volatility smile, and, in conjunction with the first half, can be used for as the basis for a more advanced course.
Estimating Volatility Levels for Option Pricing
Author:
Publisher:
Published: 1997
Total Pages: 98
ISBN-13:
DOWNLOAD EBOOKSemiparametric Modeling of Implied Volatility
Author: Matthias R. Fengler
Publisher: Springer Science & Business Media
Published: 2005-12-19
Total Pages: 232
ISBN-13: 3540305912
DOWNLOAD EBOOKThis book offers recent advances in the theory of implied volatility and refined semiparametric estimation strategies and dimension reduction methods for functional surfaces. The first part is devoted to smile-consistent pricing approaches. The second part covers estimation techniques that are natural candidates to meet the challenges in implied volatility surfaces. Empirical investigations, simulations, and pictures illustrate the concepts.
Estimation of Stochastic Volatility Models for the Purpose of Option Pricing
Author: Mikhail Chernov
Publisher:
Published: 2012
Total Pages:
ISBN-13:
DOWNLOAD EBOOKThe paper complements the reviews on the stochastic volatility models and option pricing. We discuss recent advances in modeling and estimation techniques which allow to investigate models with latent factors and non-unique risk-neutral probability measures. The issues related to the optimal data utilization and volatility filtering are highlighted. We also discuss some of the future research in this area.
Volatility Surface and Term Structure
Author: Kin Keung Lai
Publisher: Routledge
Published: 2013-09-11
Total Pages: 113
ISBN-13: 1135006989
DOWNLOAD EBOOKThis book provides different financial models based on options to predict underlying asset price and design the risk hedging strategies. Authors of the book have made theoretical innovation to these models to enable the models to be applicable to real market. The book also introduces risk management and hedging strategies based on different criterions. These strategies provide practical guide for real option trading. This book studies the classical stochastic volatility and deterministic volatility models. For the former, the classical Heston model is integrated with volatility term structure. The correlation of Heston model is considered to be variable. For the latter, the local volatility model is improved from experience of financial practice. The improved local volatility surface is then used for price forecasting. VaR and CVaR are employed as standard criterions for risk management. The options trading strategies are also designed combining different types of options and they have been proven to be profitable in real market. This book is a combination of theory and practice. Users will find the applications of these financial models in real market to be effective and efficient.
