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A Time Series Approach to Option PricingEmpirical Performances of Discrete Time Series Models

A Time Series Approach to Option Pricing: Empirical Performances of Discrete Time Series Models [Having in mind the previously developed models (Chap. 2) and pricing approaches (Chap. 3), this chapter intends to provide the reader with an empirical comparison of them. Even though part of the arguments in this book can seem rather theoretical, the underlying intention behind all of this is to provide a pricing technology that is based on realistic models of financial markets. In this chapter, we will be using a dataset of European options on the S&P500 to test and compare those models. We will not only compare the time series approaches that have been discussed earlier, but compare them to various “standards” of the industry, namely the calibrated and estimated versions of theHeston model Heston (1993) model (or at the very least their Heston-Nandi modelHeston and Nandi (2000) discrete time counterparts). By doing so, we aim at putting a greater emphasize on a key point most of quantitative analysts around the world are familiar with: rough scales of magnitude for option pricing errors that anyone could expect from a good option pricing model.] http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png

A Time Series Approach to Option PricingEmpirical Performances of Discrete Time Series Models

Chorro, Christophe; Guégan, Dominique; Ielpo, Florian
Springer Journals — Nov 22, 2014
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Publisher
Springer Berlin Heidelberg
Copyright
© Springer-Verlag Berlin Heidelberg 2015
ISBN
978-3-662-45036-9
Pages
115 –174
DOI
10.1007/978-3-662-45037-6_4
Publisher site
See Chapter on Publisher Site

Abstract

[Having in mind the previously developed models (Chap. 2) and pricing approaches (Chap. 3), this chapter intends to provide the reader with an empirical comparison of them. Even though part of the arguments in this book can seem rather theoretical, the underlying intention behind all of this is to provide a pricing technology that is based on realistic models of financial markets. In this chapter, we will be using a dataset of European options on the S&P500 to test and compare those models. We will not only compare the time series approaches that have been discussed earlier, but compare them to various “standards” of the industry, namely the calibrated and estimated versions of theHeston model Heston (1993) model (or at the very least their Heston-Nandi modelHeston and Nandi (2000) discrete time counterparts). By doing so, we aim at putting a greater emphasize on a key point most of quantitative analysts around the world are familiar with: rough scales of magnitude for option pricing errors that anyone could expect from a good option pricing model.]

Published: Nov 22, 2014

Keywords: Option Price; Implied Volatility; Strike Price; Underlying Asset; Price Performance

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