Foreign exchange option pricing under regime switching with asymmetrical jumps

Lian, Yu-Min; Chen, Jun-Home

doi:10.1016/j.frl.2021.102294

Cited by 8 publications

(3 citation statements)

References 18 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Despite the popularity of Garman and Kohlhagen (G-K) model, there were still some inconsistencies in the model. From then on, many methodologies of pricing currency option were introduced by modifying G-K model, such as Baldeauxa et al (2015), Lian and Chen (2022). Considering the fluctuation of interest rate over time, Grabbe (1983) assumed that both interest rates and exchange rate to be stochastic and constructed a new pricing model for currency option.…”

Section: Introductionmentioning

confidence: 99%

Valuation of Currency Option based on Uncertain Fractional Differential Equation

Wang,

Ralescu,

Xue

2024

Preprint

View full text Add to dashboard Cite

Uncertain fractional differential equation (UFDE) is an excellent tool for describing complicated dynamic systems. This paper analyzes the valuation problems of currency option based on UFDE under optimistic value criterion. Firstly, an uncertain fractional currency model is formulated to describe the dynamics of foreign exchange rate. Then, the pricing formulae of European, American and Asian currency option are obtained under optimistic value criterion, respectively. Finally, numerical simulations are provided to illustrate the validity of our theoretical results.

show abstract

Section: Introductionmentioning

confidence: 99%

Valuation of Currency Option based on Uncertain Fractional Differential Equation

Wang,

Ralescu,

Xue

2024

Preprint

View full text Add to dashboard Cite

show abstract

“…To better capture market characteristics, such as volatility smile, heavy tails, skewness, and jump, existing literature incorporates these features into quanto option pricing models, including GARCH models, stochastic volatility models, jump-diffusion models, etc. More related research refers to [2][3][4][5]. Moreover, Teng et al [6] assumed that the correlation between the underlying asset and currency exchange rate is dynamic, and they found that this dynamic correlation had a significant impact on the quanto option pricing.…”

Section: Introductionmentioning

confidence: 99%

Pricing quanto options with market liquidity risk

Gao,

Bai

2023

PLoS ONE

View full text Add to dashboard Cite

This paper investigates the pricing problem of quanto options with market liquidity risk using the Bayesian method. The increasing volatility of global financial markets has made liquidity risk a significant factor that should be taken into consideration while evaluating option prices. To address this issue, we first derive the pricing formula for quanto options with liquidity risk. Next, we construct a likelihood function to conduct posterior inference on model parameters. We then propose a numerical algorithm to conduct statistical inferences on the option prices based on the posterior distribution. This proposed method considers the impact of parameter uncertainty on option prices. Finally, we conduct a comparison between the Bayesian method and traditional estimation methods to examine their validity. Empirical results show that our proposed method is feasible for pricing and predicting quanto options with liquidity risk, particularly for parameter estimations with a small sample size.

show abstract

“…In order to better capture market characteristics, such as volatility smile, heavy tails, skewness and jump, the existing literatures incorporate these features into quanto option model, for example GARCH models, stochastic volatility models and jump-diffusion models, etc. More related research refers to [2,3,4,5,6].…”

Section: Introductionmentioning

confidence: 99%

Posterior inference on Quanto option pricing model with liquidity-adjustment

Gao

Bai

2022

Preprint

View full text Add to dashboard Cite

This paper proposes an alternative approach to estimate parameters and evaluate the quanto option with stock liquidity under Bayesian framework. First, we derive an explicit expression of the quanto option price with liquidity-adjustment in an alternative way. Then, an applicable likelihood is proposed to conduct posterior inference on model parameters based on the joint distribution of underlying stock price dynamics and the exchange rate process, which provides a new perspective to estimate the correlation coefficient. Moreover, the statistical inference on the quanto option price is conducted by the posterior distribution and numerical algorithm. The proposed method considers the impact of parameter uncertainty on option prices, particularly the correlation coefficient randomness. Finally, the numerical analysis is performed for examining the effectiveness of the proposed method in terms of estimating parameters and pricing quanto options. Empirical results indicate that the proposed method is feasible in pricing and predicting quanto option with liquidity-adjustment.

show abstract

Foreign exchange option pricing under regime switching with asymmetrical jumps

Cited by 8 publications

References 18 publications

Valuation of Currency Option based on Uncertain Fractional Differential Equation

Valuation of Currency Option based on Uncertain Fractional Differential Equation

Pricing quanto options with market liquidity risk

Posterior inference on Quanto option pricing model with liquidity-adjustment

Contact Info

Product

Resources

About