Simple is better. Empirical comparison of American option valuation methods

• Autorzy: Katarzyna Toporek
• Języki publikacji: EN

Abstrakty

EN

Technique for American options valuation, combining Least Squares Monte Carlo with Duan's model under the assumption that the volatility of the underlier can be described by GARCH(1, 1) process, has been confronted with simple binomial tree model. Results of comparison of model outcomes with market prices for ten different CBOE-traded stock options indicate that simple binomial model is superior to sophisticated GARCH-LSM method. The results hold regardless of option characteristics-"moneyness" ratio and time to maturity. Incorporating dividend in binomial model does not significantly alter the valuation outcomes. Detailed analysis shows also that for each of the methods pricing errors grow as the "moneyness" ratio decreases. (original abstract)

Słowa kluczowe

EN

Monte Carlo method; GARCH model; Options pricing; Binomial model

PL

Metoda Monte Carlo; Model GARCH; Wycena opcji; Model dwumianowy

• Czasopismo: Ekonomia / Uniwersytet Warszawski
• Rocznik: 2012
• Numer: nr 29
• Strony: 115--144

Twórcy

autor

Katarzyna Toporek

• University of Warsaw, Poland

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