Option Pricing Under Discrete Shifts in Stock Returns

A New Stock Model for Option Pricing in Uncertain Environment

The option-pricing problem is always an important part in modern finance. Assuming that the stock diffusion is a constant, some literature has introduced many stock models and given corresponding option pricing formulas within the framework of the uncertainty theory. In this paper, we propose a new stock model with uncertain stock diffusion for uncertain markets. Some option pricing formulas on...

Option Pricing in Bilateral Gamma Stock Models

In the framework of bilateral Gamma stock models we seek for adequate option pricing measures, which have an economic interpretation and allow numerical calculations of option prices. Our investigations encompass Esscher transforms, minimal entropy martingale measures, p-optimal martingale measures, bilateral Esscher transforms and the minimal martingale measure. We illustrate our theory by a n...

The Impact on Option Pricing of Specification Error in the Underlying Stock Price Returns

Pricing When Underlying Stock Returns Are Discontinuous

The validity of the classic Black-Scholes option pricing formula dcpcnds on the capability of investors to follow a dynamic portfolio strategy in the stock that replicates the payoff structure to the option. The critical assumption required for such a strategy to be feasible, is that the underlying stock return dynamics can be described by a stochastic process with a continuous sample path. In ...

An Introduction to Modeling Stock Price Returns With a View Towards Option Pricing

Financial options, namely stock options, are ways in which investors can manage the risk level of their portfolios and control the timing of various cash flows. Because, in most basic terms, this class of derivatives consists of agreements to buy or sell financial assets (here, shares of stock) at a prescribed time in the future, determining their fair market value requires a prediction of the ...