Loading...
Please wait, while we are loading the content...
Similar Documents
Three Essays On Estimation Of Risk Neutral Measures Using Option Pricing Models
| Content Provider | Semantic Scholar |
|---|---|
| Author | Lee, Seung Hwan |
| Copyright Year | 2008 |
| Abstract | This dissertation develops two new parametric and nonparametric methods for estimating risk-neutral measures (RNM) which embody important information about market participants’ sentiments concerning prices of the underlying asset in the future, and investigates empirical performance of parametric RNM estimation methods. The first essay, “Estimation of Risk Neutral Measures using the Generalized TwoFactor Log-Stable Option Pricing Model”, constructs a simple representative agent model to provide a theoretical framework for the log-stable option pricing model and then implements a new parametric method for estimating the RNM using a generalized two-factor log-stable option pricing model. Under the generalized two-factor log-stable uncertainty assumption, the RNM for the log of price is a convolution of two exponentially tilted stable distributions. Since the RNM for generalized two-factor log-stable uncertainty is expressed in terms of its Fourier Transform, I introduce a simple extension of the Fast Fourier Transform inversion procedure in order to reduce computational errors. The generalized two-factor log-stable RNM has a very flexible parametric form for approximating other probability distributions. Thus, this model provides a sufficiently accurate tool for estimating the RNM from observed option prices even if the log-stable assumption might not be satisfied. I estimate the RNM using the S&P 500 index options and find that the generalized two-factor log-stable model gives better performance than the Black-Scholes model (1973), the finite moment log-stable model (Carr and Wu, 2003), and the orthogonal logstable model (McCulloch, 2003) in fitting the observed option prices. |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | https://etd.ohiolink.edu/!etd.send_file?accession=osu1210724615&disposition=inline |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
