The Role of Additional Information in Option Pricing: Estimation Issue under Jump-Diffusion Models
Date Issued
2009
Date
2009
Author(s)
Huang, Chien-Lin
Abstract
In this paper, the main issue is about parameters involved with the stock’s volatility, which are the σ in the Winner (diffusion) process and the λ and δ in the Poisson (jump) process, under the special cases of jump diffusion models with two assumptions that are independence between option prices’ errors and stock and normal error between pricing formula and true price. The core of this paper is the improvement of the estimation accuracy by taking the option data into account together with the stock data. The special cases of Jump-Diffusion models, the constant and log-normal jump size, are adopted to investigate estimation issue by finding maximum likelihood estimators. To compare with the accuracy, we estimate the parameters by stock data only, and in the other hand, adding the option data. As the experience and the results from the numerical work and Fisher’s Information, the accuracy is improved indeed by adding option data.
Subjects
Jump-Diffusion Models
Option pricing
Additional informaton
estimation
Type
thesis
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