On option pricing models in the presence of heavy tails

被引:16
|
作者
Vellekoop, Michel
Nieuwenhuis, Hans
机构
[1] Univ Twente, FELab, NL-7500 AE Enschede, Netherlands
[2] Univ Twente, Dept Appl Math, NL-7500 AE Enschede, Netherlands
[3] Univ Groningen, Fac Econ, NL-9700 AV Groningen, Netherlands
关键词
contingent claim pricing; heavy-tailed distributions; stochastic volatility;
D O I
10.1080/14697680601077967
中图分类号
F8 [财政、金融];
学科分类号
0202 ;
摘要
We propose a modification of the option pricing framework derived by Borland which removes the possibilities for arbitrage within this framework. It turns out that such arbitrage possibilities arise due to an incorrect derivation of the martingale transformation in the non-Gaussian option models which are used in that paper. We show how a similar model can be built for the asset price processes which excludes arbitrage. However, the correction causes the pricing formulas to be less explicit than the ones in the original formulation, since the stock price itself is no longer a Markov process. Practical option pricing algorithms will therefore have to resort to Monte Carlo methods or partial differential equations and we show how these can be implemented. An extra parameter, which needs to be specified before the model can be used, will give market makers some extra freedom when fitting their model to market data.
引用
收藏
页码:563 / 573
页数:11
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