Reference no: EM134812 , Length: 60
Dissertation writing help - Option Pricing for Discrete Hedging and Non-Gaussian Processes
Custom Dissertation Writing Service - on minimizing the portfolio risk minimizes the option price.
The Black-Scholes option pricing technique is correct under certain assumptions, among others continuous hedging and a log-normal underlying process. If any of these two assumptions is not fulfilled, a risk-less replication of an option is in general not possible. To handle this case, a pricing method was proposed by Sornette and Bouchaud.
Similar to Black-Scholes, a hedging portfolio is taken. The hedging strategy is such that the risk of the hedging portfolio is minimized. An option price is then deduced from this hedging strategy. Since a risk remains, the price adds a risk premium.
In this thesis, a new alternative method is shown, which instead of minimizing the portfolio risk minimizes the option price. This makes the option most competitive on the market. For the option writer, the ratio of return to risk is, by definition of the method, the same as for the Bouchaud-Sornette approach.
Both methods were compared with each other. For typical options, differences of up to 10 % of the price were found. The risk premium as well as fat tails in the underlying process provide rise to volatility smiles for both methods. Thus, it was found that both methods are consistent with Black-Scholes pricing. The results converge towards the Black-Scholes result in the continuous time limit for a log-normal process.
|
Simulating the dynamics of the risk neutral distribution
: Knowledge about the dynamics of the risk neutral distribution is necessary for the valuation of complex options on financial assets. We present and discover a formalism (the twin formalism) that allows simulating how the risk neutral probability d..
|
|
Two-regime markov-chain model
: LIBOR Market Model- the parameterization of the forward rate volatility term structure is presented and it is shown how this relates to swap rates.
|
|
Pricing inflation-indexed derivatives
: The purpose of this thesis is to review the framework for pricing inflation-indexed derivatives using the two currency Heath-Jarrow-Morton approach introduced by Yildirim and Jarrow.
|
|
Analyze the growth of starbucks
: What was the main cause of Starbuck's problems that emerged in 2007 and 2008? What could the company have done to revive itself?
|
|
Option pricing for discrete hedging
: In this thesis, a new alternative method is shown, which instead of minimizing the portfolio risk minimizes the option price. This makes the option most competitive on the market. For the option writer, the ratio of return to risk is, by definitio..
|
|
Why to emphasis on balanced portfolio as a concept
: The link between portfolio level objectives with portfolio success factors that are achieved through individual projects and points out how contributes to strategic fit, use of synergies, etc.
|
|
What is veil of incorporation
: The circumstances in which the protection afforded to members by separate legal personality and the ‘veil of incorporation' will be separate by the courts.
|
|
Credit barrier and dynamic correlation techniques
: The distinct nature of SMEs makes the pricing and structuring of SME CDO products particularly difficult. First of all, SMEs are openly unrated causing information moral and asymmetries hazard complexities within the SME CDO market.
|
|
Ways in which organizational managements can be made
: what are the possible ways in which organizational managements can be made to see the importance of emotional intelligence in their organizations
|