scholarly journals Geometric Average Asian Option Pricing with Paying Dividend Yield under Non-Extensive Statistical Mechanics for Time-Varying Model

Entropy ◽  
2018 ◽  
Vol 20 (11) ◽  
pp. 828 ◽  
Author(s):  
Jixia Wang ◽  
Yameng Zhang
Keyword(s):  
Statistical Mechanics ◽  
Option Pricing ◽  
Asset Price ◽  
Closed Form Solution ◽  
Real Data ◽  
Form Solution ◽  
Asian Option ◽  
Time Varying ◽  
Dividend Yield ◽  
Geometric Average

This paper is dedicated to the study of the geometric average Asian call option pricing under non-extensive statistical mechanics for a time-varying coefficient diffusion model. We employed the non-extensive Tsallis entropy distribution, which can describe the leptokurtosis and fat-tail characteristics of returns, to model the motion of the underlying asset price. Considering that economic variables change over time, we allowed the drift and diffusion terms in our model to be time-varying functions. We used the I t o ^ formula, Feynman–Kac formula, and P a d e ´ ansatz to obtain a closed-form solution of geometric average Asian option pricing with a paying dividend yield for a time-varying model. Moreover, the simulation study shows that the results obtained by our method fit the simulation data better than that of Zhao et al. From the analysis of real data, we identify the best value for q which can fit the real stock data, and the result shows that investors underestimate the risk using the Black–Scholes model compared to our model.

scholarly journals A Closed-Form Solution to Planar Feature-Based Registration of LiDAR Point Clouds

2021 ◽  
Vol 10 (7) ◽  
pp. 435
Author(s):  
Yongbo Wang ◽  
Nanshan Zheng ◽  
Zhengfu Bian
Keyword(s):  
Closed Form ◽  
Closed Form Solution ◽  
Simulated Data ◽  
Real Data ◽  
Point Clouds ◽  
Form Solution ◽  
Spatial Transformation ◽  
Dual Quaternions ◽  
Feature Based ◽  
Planar Feature

Since pairwise registration is a necessary step for the seamless fusion of point clouds from neighboring stations, a closed-form solution to planar feature-based registration of LiDAR (Light Detection and Ranging) point clouds is proposed in this paper. Based on the Plücker coordinate-based representation of linear features in three-dimensional space, a quad tuple-based representation of planar features is introduced, which makes it possible to directly determine the difference between any two planar features. Dual quaternions are employed to represent spatial transformation and operations between dual quaternions and the quad tuple-based representation of planar features are given, with which an error norm is constructed. Based on L2-norm-minimization, detailed derivations of the proposed solution are explained step by step. Two experiments were designed in which simulated data and real data were both used to verify the correctness and the feasibility of the proposed solution. With the simulated data, the calculated registration results were consistent with the pre-established parameters, which verifies the correctness of the presented solution. With the real data, the calculated registration results were consistent with the results calculated by iterative methods. Conclusions can be drawn from the two experiments: (1) The proposed solution does not require any initial estimates of the unknown parameters in advance, which assures the stability and robustness of the solution; (2) Using dual quaternions to represent spatial transformation greatly reduces the additional constraints in the estimation process.

scholarly journals Empirical Performance of Black-Scholes and GARCH Option Pricing Models during Turbulent Times: The Indian Evidence

2016 ◽  
Vol 8 (3) ◽  
pp. 123
Author(s):  
Aparna Bhat ◽  
Kirti Arekar
Keyword(s):  
Option Pricing ◽  
Closed Form Solution ◽  
Time Varying ◽  
Pricing Model ◽  
Currency Options ◽  
Pricing Models ◽  
Pricing Options ◽  
Volatility Model ◽  
Black Scholes ◽  
Option Pricing Model

Exchange-traded currency options are a recent innovation in the Indian financial market and their pricing is as yet unexplored. The objective of this research paper is to empirically compare the pricing performance of two well-known option pricing models – the Black-Scholes-Merton Option Pricing Model (BSM) and Duan’s NGARCH option pricing model – for pricing exchange-traded currency options on the US dollar-Indian rupee during a recent turbulent period. The BSM is known to systematically misprice options on the same underlying asset but with different strike prices and maturities resulting in the phenomenon of the ‘volatility smile’. This bias of the BSM results from its assumption of a constant volatility over the option’s life. The NGARCH option pricing model developed by Duan is an attempt to incorporate time-varying volatility in pricing options. It is a deterministic volatility model which has no closed-form solution and therefore requires numerical techniques for evaluation. In this paper we have compared the pricing performance and examined the pricing bias of both models during a recent period of volatility in the Indian foreign exchange market. Contrary to our expectations the pricing performance of the more sophisticated NGARCH pricing model is inferior to that of the relatively simple BSM model. However orthogonality tests demonstrate that the NGARCH model is free of the strike price and maturity biases associated with the BSM. We conclude that the deterministic BSM does a better job of pricing options than the more advanced time-varying volatility model based on GARCH.

scholarly journals Obtaining the Correspondence Between Bayesian and Neural Networks

1998 ◽  
Vol 12 (07) ◽  
pp. 901-920 ◽  
Author(s):  
A. Stassopoulou ◽  
M. Petrou
Keyword(s):  
Neural Network ◽  
Bayesian Network ◽  
Full Range ◽  
Closed Form Solution ◽  
Real Data ◽  
Form Solution ◽  
Least Square ◽  
Novel Method ◽  
Probability Matrices ◽  
Desertification Assessment

We present in this paper a novel method for eliciting the conditional probability matrices needed for a Bayesian network with the help of a neural network. We demonstrate how we can obtain a correspondence between the two networks by deriving a closed-form solution so that the outputs of the two networks are similar in the least square error sense, not only when determining the discriminant function, but for the full range of their outputs. For this purpose we take into consideration the probability density functions of the independent variables of the problem when we compute the least square error approximation. Our methodoloy is demonstrated with the help of some real data concerning the problem of risk of desertification assessment for some burned forests in Attica, Greece where the parameters of the Bayesian network constructed for this task are successfully estimated given a neural network trained with a set of data.

Alternative Formulas to Compute Implied Standard Deviation

2009 ◽  
Vol 12 (02) ◽  
pp. 159-176 ◽  
Author(s):  
James S. Ang ◽  
Gwoduan David Jou ◽  
Tsong-Yue Lai
Keyword(s):  
Standard Deviation ◽  
Closed Form ◽  
Asset Price ◽  
Closed Form Solution ◽  
Form Solution ◽  
Call Option ◽  
Present Value ◽  
Underlying Asset ◽  
The Third ◽  
Exercise Price

We assume that the call option's value is correctly priced by Black and Scholes' option pricing model in this paper. This paper derives an exact closed-form solution for implied standard deviation under the condition that the underlying asset price equals the present value of the exercise price. The exact closed-form solution provides the true implied standard deviation and has no estimate error. This paper also develops three alternative formulas to estimate the implied standard deviation if this condition is violated. Application of the Taylor expansion on a single call option value derives the first formula. The accuracy of this formula depends on the deviation between the underlying asset price and the present value of the exercise price. Use of the Taylor formula on two call option prices with different exercise prices is used to develop the second formula, which can be used even though the underlying asset price deviates significantly from the present value of the exercise price. Extension of the second formula's approach to third options value derives the third formula. A merit of the third formula is to circumvent a required parameter used in the second formula. Simulations demonstrate that the implied standard deviations calculated by the second and third formulas provide accurate estimates of the true implied standard deviations.

scholarly journals Robust Volatility Estimation and Analysis of the Leverage Effect

2021 ◽  
Author(s):  
◽  
John Randal
Keyword(s):  
Option Pricing ◽  
Stock Price ◽  
Closed Form Solution ◽  
Estimation Procedure ◽  
Form Solution ◽  
Careful Study ◽  
Financial Problem ◽  
Volatility Estimation ◽  
Real Price ◽  
Price Relationships

<p>Using volatility estimation as the underlying commonality this thesis traverses the statistical problem of robust estimation of scale, through to the financial problem of valuing call options over stock. We use a large simulation study of robust scale estimators to benchmark a nonparametric volatility estimation procedure, which not only uses techniques which are particularly suited to observed financial returns, but also addresses the problem of bias in any robust volatility estimation procedure. Existing option pricing models are discussed with careful study of the assumed volatility and elasticity of volatility with respect to stock price relationships for each of these models. An option pricing formula is derived which extends existing methods, and provides a closed form solution which can be readily computed. Preliminary analysis of real price data suggests this model is able to explain observed leverage phenomena.</p>

scholarly journals Robust Volatility Estimation and Analysis of the Leverage Effect

2021 ◽  
Author(s):  
◽  
John Randal
Keyword(s):  
Option Pricing ◽  
Stock Price ◽  
Closed Form Solution ◽  
Estimation Procedure ◽  
Form Solution ◽  
Careful Study ◽  
Financial Problem ◽  
Volatility Estimation ◽  
Real Price ◽  
Price Relationships

<p>Using volatility estimation as the underlying commonality this thesis traverses the statistical problem of robust estimation of scale, through to the financial problem of valuing call options over stock. We use a large simulation study of robust scale estimators to benchmark a nonparametric volatility estimation procedure, which not only uses techniques which are particularly suited to observed financial returns, but also addresses the problem of bias in any robust volatility estimation procedure. Existing option pricing models are discussed with careful study of the assumed volatility and elasticity of volatility with respect to stock price relationships for each of these models. An option pricing formula is derived which extends existing methods, and provides a closed form solution which can be readily computed. Preliminary analysis of real price data suggests this model is able to explain observed leverage phenomena.</p>

An Analytical Approximation for Option Price under the Affine GARCH Model - A Comparison with the Closed-Form Solution of Heston-Nandi

GIS Business ◽  
2017 ◽  
Vol 12 (4) ◽  
pp. 32-46
Author(s):  
Noureddine Lahouel ◽  
Slaheddine Hellara
Keyword(s):  
Option Pricing ◽  
Closed Form ◽  
Empirical Work ◽  
Closed Form Solution ◽  
Garch Model ◽  
Analytical Approximation ◽  
Form Solution ◽  
Option Prices ◽  
European Option ◽  
Comparative Performance

In the option pricing theory, two important approaches have been developed to evaluate the prices of a European option. The first approach develops an almost closed-form option pricing formula under a specific GARCH process (Heston & Nandi, 2000). The second approach develops an analytical approximation for computing European option prices with more widespread NGARCH models (Duan, Gauthier & Simonato, 1999). The analytical approximation was also developed under GJR-GARCH and EGARCH models by Duan, Gauthier, Sasseville & Simonato (2006). However, no empirical work was performed to study the comparative performance of these two formulas (closed-form solution and analytical approximation). Also, it is possible to develop an analytical approximation under the specific GARCH model of Heston & Nandi (2000). In this paper, we have filled up those gaps. We started with the development of an analytical approximation, for computing European option prices, under Heston-Nandis GARCH model. In the second step, we carried out a comparative analysis of the three formulas using CAC 40 index returns from 31 December 1987 to 31 December 2013.

Solving the Robot-World/Hand-Eye Calibration Problem Using the Kronecker Product

2013 ◽  
Vol 5 (3) ◽  
Author(s):  
Mili Shah
Keyword(s):  
Kronecker Product ◽  
Closed Form Solution ◽  
Simulated Data ◽  
Real Data ◽  
Accurate Method ◽  
Form Solution ◽  
Singular Value ◽  
Error Metrics ◽  
Calibration Problem ◽  
Value Decomposition

This paper constructs a separable closed-form solution to the robot-world/hand-eye calibration problem AX = YB. Qualifications and properties that determine the uniqueness of X and Y as well as error metrics that measure the accuracy of a given X and Y are given. The formulation of the solution involves the Kronecker product and the singular value decomposition. The method is compared with existing solutions on simulated data and real data. It is shown that the Kronecker method that is presented in this paper is a reliable and accurate method for solving the robot-world/hand-eye calibration problem.

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