AN ANALYTICAL OPTION PRICING FORMULA FOR MEAN-REVERTING ASSET WITH TIME-DEPENDENT PARAMETER

被引：7
|
作者：
Nonsoong, P. [1 ]
Mekchay, K. [1 ]
Rujivan, S. [2 ]
机构：
[1] Chulalongkorn Univ, Dept Math & Comp Sci, Bangkok, Thailand
[2] Walailak Univ, Sch Sci, Div Math & Stat, Ctr Excellence Data Sci Hlth Study, Nakhon Si Thammarat, Thailand
来源：
ANZIAM JOURNAL | 2021年 / 63卷 / 02期
关键词：
option pricing; mean-reverting process; Feynman-Kac formula; SAMPLED VARIANCE SWAPS; VALUATION;
D O I：
10.1017/S1446181121000262
中图分类号：
O29 [应用数学];
学科分类号：
070104 ;
摘要：
We present an analytical option pricing formula for the European options, in which the price dynamics of a risky asset follows a mean-reverting process with a time-dependent parameter. The process can be adapted to describe a seasonal variation in price such as in agricultural commodity markets. An analytical solution is derived based on the solution of a partial differential equation, which shows that a European option price can be decomposed into two terms: the payoff of the option at the initial time and the time-integral over the lifetime of the option driven by a time-dependent parameter. Finally, results obtained from the formula have been compared with Monte Carlo simulations and a Black-Scholes-type formula under various kinds of long-run mean functions, and some examples of option price behaviours have been provided.
引用
收藏
页码：178 / 202
页数：25
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