Market-Conform Valuation of Options

Market-Conform Valuation of Options
Title Market-Conform Valuation of Options PDF eBook
Author Tobias Herwig
Publisher Springer Science & Business Media
Pages 112
Release 2006-03-12
Genre Business & Economics
ISBN 3540308385

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1. 1 The Area of Research In this thesis, we will investigate the 'market-conform' pricing of newly issued contingent claims. A contingent claim is a derivative whose value at any settlement date is determined by the value of one or more other underlying assets, e. g. , forwards, futures, plain-vanilla or exotic options with European or American-style exercise features. Market-conform pricing means that prices of existing actively traded securities are taken as given, and then the set of equivalent martingale measures that are consistent with the initial prices of the traded securities is derived using no-arbitrage arguments. Sometimes in the literature other expressions are used for 'market-conform' valuation - 'smile-consistent' valuation or 'fair-market' valuation - that describe the same basic idea. The seminal work by Black and Scholes (1973) (BS) and Merton (1973) mark a breakthrough in the problem of hedging and pricing contingent claims based on no-arbitrage arguments. Harrison and Kreps (1979) provide a firm mathematical foundation for the Black-Scholes- Merton analysis. They show that the absence of arbitrage is equivalent to the existence of an equivalent martingale measure. Under this mea sure the normalized security price process forms a martingale and so securities can be valued by taking expectations. If the securities market is complete, then the equivalent martingale measure and hence the price of any security are unique.

Market-Conform Valuation of Options

Market-Conform Valuation of Options
Title Market-Conform Valuation of Options PDF eBook
Author Tobias Herwig
Publisher Taylor & Francis
Pages 120
Release 2006-01-17
Genre Business & Economics
ISBN 9783540308379

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The focus of this volume is on the development of new approaches for the market-conform valuation of newly issued derivatives. The first chapter presents a flexible approach to construct the binomial process of the underlying asset price by using a simultaneously backward and forward induction algorithm. This framework can be used to price and hedge a wide range of plain-vanilla and exotic options. In the second chapter this new approach is compared to existing models using a sample of plain-vanilla options, American call options and European Barrier options from two competing markets. In the third chapter new methods to value American-style options via Monte Carlo simulations in accordance with given market prices are discussed. After a short introduction to Monte Carlo methods, two new approaches are proposed. These new frameworks are illustrated via pricing examples for standard American put options.

Real Options in Practice

Real Options in Practice
Title Real Options in Practice PDF eBook
Author Marion A. Brach
Publisher John Wiley & Sons
Pages 384
Release 2003-04-07
Genre Business & Economics
ISBN 0471445568

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Explores real option theory applied in practice Real options are quickly becoming the valuation and decision-making method of choice for many companies, including oil and gas companies, utilities and natural resource companies, pharmaceutical and biotech companies, Internet companies, and many others. Real Options in Practice allows readers to view the world of real options from the vantage point of a corporate practitioner applying real option valuation techniques on a regular basis. Expert Marion Brach describes the challenges of implementing a real option framework in practice within a corporate setting. Touching on the real options most firms care about, Real Options in Practice identifies the classic types of real options-deferral, abandonment, switching, expansion, and compound-and explores the main concepts critical to understanding real option theory. Through Brach's own three-step real option valuation method readers will learn how the theory of real options is now being applied to drive better, more profitable corporate decision-making. Marion A. Brach, MD, MBA (Hagen, Germany), has undertaken financial valuation of business opportunities and acquisitions using scenario and real option valuation in the biotech industry. A recognized expert on real option theory and practice, Brach received her MBA from the Manchester Business School and frequently speaks at real option seminars.

The Valuation of Option Contracts and a Test of Market Efficiency

The Valuation of Option Contracts and a Test of Market Efficiency
Title The Valuation of Option Contracts and a Test of Market Efficiency PDF eBook
Author Der-Ann Hsu
Publisher
Pages 20
Release 1975
Genre Option (Contract)
ISBN

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Computational Aspects of General Equilibrium Theory

Computational Aspects of General Equilibrium Theory
Title Computational Aspects of General Equilibrium Theory PDF eBook
Author Donald Brown
Publisher Springer Science & Business Media
Pages 204
Release 2008-01-08
Genre Business & Economics
ISBN 3540765913

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This monograph presents a general equilibrium methodology for microeconomic policy analysis. It is intended to serve as an alternative to the now classical, axiomatic general equilibrium theory as exposited in Debreu`s Theory of Value (1959) or Arrow and Hahn`s General Competitive Analysis (1971). The monograph consists of several essays written over the last decade. It also contains an appendix by Charles Steinhorn on the elements of O-minimal structures.

Options Markets

Options Markets
Title Options Markets PDF eBook
Author John C. Cox
Publisher Prentice Hall
Pages 518
Release 1985
Genre Business & Economics
ISBN

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Includes the first published detailed description of option exchange operations, the first published treatment using only elementary mathematics and the first step-by-step procedure for implementing the Black-Scholes formula in actual trading.

Financial Risk Management with Bayesian Estimation of GARCH Models

Financial Risk Management with Bayesian Estimation of GARCH Models
Title Financial Risk Management with Bayesian Estimation of GARCH Models PDF eBook
Author David Ardia
Publisher Springer Science & Business Media
Pages 206
Release 2008-05-08
Genre Business & Economics
ISBN 3540786570

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This book presents in detail methodologies for the Bayesian estimation of sing- regime and regime-switching GARCH models. These models are widespread and essential tools in n ancial econometrics and have, until recently, mainly been estimated using the classical Maximum Likelihood technique. As this study aims to demonstrate, the Bayesian approach o ers an attractive alternative which enables small sample results, robust estimation, model discrimination and probabilistic statements on nonlinear functions of the model parameters. The author is indebted to numerous individuals for help in the preparation of this study. Primarily, I owe a great debt to Prof. Dr. Philippe J. Deschamps who inspired me to study Bayesian econometrics, suggested the subject, guided me under his supervision and encouraged my research. I would also like to thank Prof. Dr. Martin Wallmeier and my colleagues of the Department of Quantitative Economics, in particular Michael Beer, Roberto Cerratti and Gilles Kaltenrieder, for their useful comments and discussions. I am very indebted to my friends Carlos Ord as Criado, Julien A. Straubhaar, J er ^ ome Ph. A. Taillard and Mathieu Vuilleumier, for their support in the elds of economics, mathematics and statistics. Thanks also to my friend Kevin Barnes who helped with my English in this work. Finally, I am greatly indebted to my parents and grandparents for their support and encouragement while I was struggling with the writing of this thesis.