Option pricing in an investment risk-return setting
نویسندگان
چکیده
In this paper, we combine modern portfolio theory and option pricing so that a trader taking position in European contract, the underlying assets, risk-free bond can constru...
منابع مشابه
Option Pricing in the Presence of Operational Risk
In this paper we distinguish between operational risks depending on whether the operational risk naturally arises in the context of model risk. As the pricing model exposes itself to operational errors whenever it updates and improves its investment model and other related parameters. In this case, it is no longer optimal to implement the best model. Generally, an option is exercised in a jump-...
متن کاملInvestment system specific European option pricing intervals
Consider an investment system with a nonnegative expected return in a one period economy. We show that, for an option with a given strike price, there exists a pricing interval [pC , pW ] such that replacing the original investment with the option will benefit judging by the Kelly criterion only when the price of the option lies outside of the interval. More specifically, buying call options wi...
متن کاملRisk and Return: Underwriting, Investment and Leverage Probability of Surplus Drawdown and Pricing for Underwriting and Investment Risk
The basic components of the risk/return model applicable to insurance consist of underwriting return, investment return and leverage. A pricing approach is presented to deal with underwriting and investment risk, guided by basic risk/return principles, which addresses the policyholder and shareholder perspectives in a consistent manner. A methodology to determine leverage is also presented, but...
متن کاملIntraday Stock Return Distribution for Black-scholes Option Pricing
The availability of intraday stock/index return in the web facilitates the improvement of return volatility estimation over the traditional method that is based on inter-day return data. Truncated Levy process distribution is used to extract the intraday return distribution parameters. The calibration to the volatility for Black-Scholes option pricing is studied using the data from Levy-Gaussia...
متن کاملOn the duality principle in option pricing: semimartingale setting
The purpose of this paper is to describe the appropriate mathematical framework for the study of the duality principle in option pricing. We consider models where prices evolve as general exponential semimartingales and provide a complete characterization of the dual process under the dual measure. Particular cases of these models are the ones driven by Brownian motions and by Lévy processes, w...
متن کاملذخیره در منابع من
با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید
ژورنال
عنوان ژورنال: Applied Economics
سال: 2021
ISSN: ['0003-6846', '1466-4283']
DOI: https://doi.org/10.1080/00036846.2021.1980490