Please use this identifier to cite or link to this item:
http://hdl.handle.net/10267/13670
Title: | Monte Carlo Pricing of Derivative Securities and Uncertainty in Volatility Estimation |
Authors: | Joplin, George A. |
Keywords: | Text;Honors papers;Mathematics and Computer Science, Department of;Economics, Department of;Student research |
Issue Date: | May-2011 |
Publisher: | Memphis, Tenn. : Rhodes College |
Abstract: | In the standard time-inhomogeneous di usion model, estimation of the volatility function is far more important for Monte Carlo pricing than estimation of the drift function (due to a standard application of Girsanov's Theorem). As such, we study the distribution of option prices under the uncertainty of volatility function estimation. First, we run Monte Carlo simulations to price a variety of options using a xed estimate of the volatility function. Then, we run Monte Carlo simulations to price a variety of options using a bootstrapped re-estimation of volatility function in each Monte Carlo trial. The di erences in the resulting distributions of option prices may have implications for thinking about the bid-ask spread on an option price, and can be compared to historical data to gain a more complete perspective on the acceptability of various American-style option prices. Description: George Joplin granted permission for the digitization of this paper. It was submitted by CD. |
Description: | George A. Joplin granted permission for his paper to be published in DLynx. He submitted at PDF copy of his paper. |
URI: | http://hdl.handle.net/10267/13670 |
Appears in Collections: | Honors Papers |
Files in This Item:
File | Description | Size | Format | |
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Joplin_George_Honors_2011[1].pdf | 806.6 kB | Adobe PDF | View/Open |
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