Volatility Estimation Techniques in Pricing Derivative Contracts
Emilie Drop
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Volatility Estimation Techniques in Pricing Derivative Contracts

University of St. Gallen

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The aim of this paper is to evaluate how different volatility estimation techniques impact the quality of pricing option contracts. The theoretical part explains option pricing, qualitative and quantitative parameters of the Black Scholes model, and implied volatility features. The pricing performance of the Black Scholes model with historical volatilities and of the ad hoc Black Scholes model with implied volatilities are assessed with Matlab, using a real option dataset consisting of S&P 500 call options. Moreover, the specification of the regression structure used in the ad hoc Black Schole...