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LUND UNIVERSITY LIBRARIES

Option Valuation in Changing Markets

Melin, Andreas LU (2013) NEKN01 20131
Department of Economics
Abstract (Swedish)
Theoretical option prices can be computed using several different pricing models which make numerous assumptions about the markets and the underlying asset. Depending on those assumptions, the models have different strengths and weaknesses which make them more suited to a specific type of market.
This study evaluates six different pricing models implemented in MATLAB, and introduces a combined model which is a linear combination of two of the implemented models. They are dynamically combined by an exogenous framework utilizing estimated market volatility to blend the models and minimize the model price error. This combined model is empirically tested using European call options with the DAX and the FTSE indices as the underlying assets.... (More)
Theoretical option prices can be computed using several different pricing models which make numerous assumptions about the markets and the underlying asset. Depending on those assumptions, the models have different strengths and weaknesses which make them more suited to a specific type of market.
This study evaluates six different pricing models implemented in MATLAB, and introduces a combined model which is a linear combination of two of the implemented models. They are dynamically combined by an exogenous framework utilizing estimated market volatility to blend the models and minimize the model price error. This combined model is empirically tested using European call options with the DAX and the FTSE indices as the underlying assets. For both indices, the price error is significantly smaller in the combined model than in any of the six standard models. (Less)
Please use this url to cite or link to this publication:
author
Melin, Andreas LU
supervisor
organization
course
NEKN01 20131
year
type
H1 - Master's Degree (One Year)
subject
keywords
Option pricing, combined pricing model, pricing models, finite differences, numerical methods
language
English
id
3803952
date added to LUP
2013-06-20 10:47:43
date last changed
2013-06-20 10:47:43
@misc{3803952,
  abstract     = {Theoretical option prices can be computed using several different pricing models which make numerous assumptions about the markets and the underlying asset. Depending on those assumptions, the models have different strengths and weaknesses which make them more suited to a specific type of market.
This study evaluates six different pricing models implemented in MATLAB, and introduces a combined model which is a linear combination of two of the implemented models. They are dynamically combined by an exogenous framework utilizing estimated market volatility to blend the models and minimize the model price error. This combined model is empirically tested using European call options with the DAX and the FTSE indices as the underlying assets. For both indices, the price error is significantly smaller in the combined model than in any of the six standard models.},
  author       = {Melin, Andreas},
  keyword      = {Option pricing,combined pricing model,pricing models,finite differences,numerical methods},
  language     = {eng},
  note         = {Student Paper},
  title        = {Option Valuation in Changing Markets},
  year         = {2013},
}