Option pricing during post-crash relaxation times

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dc.contributor.author Dibeh, Ghassan
dc.contributor.author Harmanani, Haidar M.
dc.date.accessioned 2016-04-11T13:06:56Z
dc.date.available 2016-04-11T13:06:56Z
dc.date.copyright 2007 en_US
dc.date.issued 2017-05-23
dc.identifier.issn 0378-4371 en_US
dc.identifier.uri http://hdl.handle.net/10725/3531 en_US
dc.description.abstract This paper presents a model for option pricing in markets that experience financial crashes. The stochastic differential equation (SDE) of stock price dynamics is coupled to a post-crash market index. The resultant SDE is shown to have stock price and time dependent volatility. The partial differential equation (PDE) for call prices is derived using risk-neutral pricing. European call prices are then estimated using Monte Carlo and finite difference methods. Results of the model show that call option prices after the crash are systematically less than those predicted by the Black–Scholes model. This is a result of the effect of non-constant volatility of the model that causes a volatility skew. en_US
dc.language.iso en en_US
dc.title Option pricing during post-crash relaxation times en_US
dc.type Article en_US
dc.description.version Published en_US
dc.author.school SOB en_US
dc.author.school SAS en_US
dc.author.idnumber 199490170 en_US
dc.author.idnumber 199490150 en_US
dc.author.woa N/A en_US
dc.author.department Computer Science and Mathematics en_US
dc.description.embargo N/A en_US
dc.relation.journal Physica A: Statistical Mechanics and its Applications en_US
dc.journal.volume 380 en_US
dc.journal.issue 1 en_US
dc.article.pages 357-365 en_US
dc.keywords Asset dynamic en_US
dc.keywords Market crashes en_US
dc.keywords Option pricing en_US
dc.identifier.doi http://dx.doi.org/10.1016/j.physa.2007.02.082 en_US
dc.identifier.ctation Dibeh, G., & Harmanani, H. M. (2007). Option pricing during post-crash relaxation times. Physica A: Statistical Mechanics and its Applications, 380, 357-365. en_US
dc.author.email gdibeh@lau.edu.lb en_US
dc.author.email haidar@lau.edu.lb en_US
dc.identifier.url http://www.sciencedirect.com/science/article/pii/S0378437107001847 en_US

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