A Note on Option Pricing with the Use of Discrete-Time Stochastic Volatility Processes

• Autorzy: Anna Pajor
• Języki publikacji: EN

Abstrakty

EN

In this paper we show that in the lognormal discrete-time stochastic volatility model with predictable conditional expected returns, the conditional expected value of the discounted payoff of a European call option is infinite. Our empirical illustration shows that the characteristics of the predictive distributions of the discounted payoffs, obtained using Monte Carlo methods, do not indicate directly that the expected discounted payoffs are infinite. (original abstract)

Słowa kluczowe

EN

Bayesian econometric; Bayesian inference; Monte Carlo method

PL

Ekonometria bayesowska; Wnioskowanie bayesowskie; Metoda Monte Carlo

• Czasopismo: Central European Journal of Economic Modelling and Econometrics (CEJEME)
• Rocznik: 2009
• Tom: 1
• Numer: nr 1
• Strony: 71--79

Twórcy

autor

Anna Pajor

• Cracow University of Economics, Poland

Bibliografia

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• [5] Hull J., White A., (1987), The Pricing of Options on Assets with Stochastic Volatilities, Journal of Finance 42, 281-300.~
• [6] Jacquier E., Polson N., Rossi P., (2004), Bayesian Analysis of Stochastic Volatility Models with Fat-Tails and Correlated Errors, Journal of Econometrics 122, 185-212.
• [7] Jiang G.J., (2007), Stochastic Volatility and Option Pricing, [in:] Forecasting Volatility in the Financial Market, [ed.:] J.L. Knight, S.E. Satchell, Third edition, London: Butterworth Hernemann, 131-171
• [8] Jiang G.J., van der Sluis P.J., (1999), Index Option Pricing Models with Stochastic Volatility and Stochastic Interest Rates, European Finance Review 3, 273-310.
• [9] Mahieu R.J., Schotman P.C., (1998), An Emprical Application of Stochastic Volatility Models, Journal of Applied Econometrics 13, 333-360.
• [10] Pajor A., (2003), Procesy zmiennosci stochastycznej w bayesowskiej analizie finansowych szeregów czasowych (Stochastic Volatility Processes in Bayesian Analysis of Financial Time Series), doctoral dissertation (in Polish), published by Cracow University of Economics, Kraków.
• [11] Pajor A., (2007), Bayesian Option Pricing with Stochastic Volatility and Stochastic interest Rate, [in:] 33-rd International Conference MACROMODELS'06, [ed.:] W. Welfe, A. Welfe, Absolwent, Łódz, 65-88.
• [12] Psychoyios D., Skiadopoulos G., Alexakis P., (2003), A Review of Stochastic Volatility Processes: Properties and Implications, Journal of Risk Finance 4, 43-59.

Identyfikatory

DOI

10.24425/cejeme.2009.12223