Designing and Applying a Nonparametric Option Valuation Model

Jan Vlachý

Designing and Applying a Nonparametric Option Valuation Model

Číslo: 1/2016
Periodikum: Financial Assets and Investing
DOI: 10.5817/FAI2016-1-3

Klíčová slova: option pricing, nonparametric simulation, inefficient markets, Warsaw Stock Exchange, WIG 20 Index, Nestandardní simulace, neefektivní trhy, varšavská burza, index WIG 20

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Anotace: This paper derives, tests and discusses a comprehensive and easy to use

nonparametric option-valuation model, using a representative set of historical data on
underlying asset returns jointly with an assumption of minimalistic implied
information on current market trend and volatility expectations. Its testing on
empirical data from Warsaw Stock Exchange trading for two distinct periods of 2014
suggests that such distribution-free models are capable of delivering useful market
insights as well as applicability features, in particular wherever derivative markets are
relatively new, incomplete, illiquid, or with regard to the valuation of real options.