Alternatives to classical option pricing
Fuente:
arXiv
Salvato in:
| Autori principali: | , |
|---|---|
| Natura: | Preprint |
| Pubblicazione: |
2024
|
| Soggetti: | |
| Accesso online: | |
| Tags: |
Aggiungi Tag
Nessun Tag, puoi essere il primo ad aggiungerne!!
|
| _version_ | 1866909150080925696 |
|---|---|
| author | Lindquist, W. Brent Rachev, Svetlozar T. |
| author_facet | Lindquist, W. Brent Rachev, Svetlozar T. |
| contents | We develop two alternate approaches to arbitrage-free, market-complete, option pricing. The first approach requires no riskless asset. We develop the general framework for this approach and illustrate it with two specific examples. The second approach does use a riskless asset. However, by ensuring equality between real-world and risk-neutral price-change probabilities, the second approach enables the computation of risk-neutral option prices utilizing expectations under the natural world probability P. This produces the same option prices as the classical approach in which prices are computed under the risk neutral measure Q. The second approach and the two specific examples of the first approach require the introduction of new, marketable asset types, specifically perpetual derivatives of a stock, and a stock whose cumulative return (rather than price) is deflated. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2403_17187 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | Alternatives to classical option pricing Lindquist, W. Brent Rachev, Svetlozar T. Pricing of Securities We develop two alternate approaches to arbitrage-free, market-complete, option pricing. The first approach requires no riskless asset. We develop the general framework for this approach and illustrate it with two specific examples. The second approach does use a riskless asset. However, by ensuring equality between real-world and risk-neutral price-change probabilities, the second approach enables the computation of risk-neutral option prices utilizing expectations under the natural world probability P. This produces the same option prices as the classical approach in which prices are computed under the risk neutral measure Q. The second approach and the two specific examples of the first approach require the introduction of new, marketable asset types, specifically perpetual derivatives of a stock, and a stock whose cumulative return (rather than price) is deflated. |
| title | Alternatives to classical option pricing |
| topic | Pricing of Securities |
| url | https://arxiv.org/abs/2403.17187 |