Search results
Results From The WOW.Com Content Network
Jamshidian's trick is a technique for one-factor asset price models, which re-expresses an option on a portfolio of assets as a portfolio of options. It was developed by Farshid Jamshidian in 1989. The trick relies on the following simple, but very useful mathematical observation.
The solution can be discovered in various ways. For instance, we obtain the closed-form pricing formula once the probability distribution function of or ~ is known, or compute it numerically by means of the Monte Carlo method. Alternatively, Upon certain restrictions, one can utilize the value of the European options to approximate the solution.
Transfer entropy is a non-parametric statistic measuring the amount of directed (time-asymmetric) transfer of information between two random processes. [1] [2] [3] Transfer entropy from a process X to another process Y is the amount of uncertainty reduced in future values of Y by knowing the past values of X given past values of Y.
The approach arises since the evolution of the option value can be modelled via a partial differential equation (PDE), as a function of (at least) time and price of underlying; see for example the Black–Scholes PDE. Once in this form, a finite difference model can be derived, and the valuation obtained.
Get AOL Mail for FREE! Manage your email like never before with travel, photo & document views. Personalize your inbox with themes & tabs. You've Got Mail!
Note the dividend rate q 1 of the first asset remains the same even with change of pricing. Applying the Black-Scholes formula with these values as the appropriate inputs, e.g. initial asset value S 1 (0)/S 2 (0), interest rate q 2, volatility σ, etc., gives us the price of the option under numeraire pricing.
repeat until the discounted value at the first node in the tree equals the zero-price corresponding to the given spot interest rate for the i-th time-step. Step 2. Once solved, retain these known short rates, and proceed to the next time-step (i.e. input spot-rate), "growing" the tree until it incorporates the full input yield-curve.
The trinomial tree is a lattice-based computational model used in financial mathematics to price options. It was developed by Phelim Boyle in 1986. It is an extension of the binomial options pricing model, and is conceptually similar. It can also be shown that the approach is equivalent to the explicit finite difference method for option ...