#TITLE_ALTERNATIVE#
Many empirical studies show the negative correlation between stock price changes <br /> <br /> <br /> <br /> <br /> and volatility changes. The Constant Elasticity of Variance (CEV), originally devel- <br /> <br /> <br /> <br /> <b...
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| Format: | Theses |
| Language: | Indonesia |
| Online Access: | https://digilib.itb.ac.id/gdl/view/19694 |
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| Institution: | Institut Teknologi Bandung |
| Language: | Indonesia |
| Summary: | Many empirical studies show the negative correlation between stock price changes <br />
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and volatility changes. The Constant Elasticity of Variance (CEV), originally devel- <br />
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oped by Cox,incorporates this negative correlation. There was a closed form solution <br />
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derived by Cox, for pricing standard European option under CEV process, and for <br />
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pricing European lookback option, we will use binomial approximation developed <br />
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by Nelson and Ramaswamy (1990), and pricing algorithms developed by Costabile <br />
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(2006). The results show the difierences between pricing option under CEV process <br />
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and lognormal assumption, and of course it is much more important to have the <br />
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correct model specification for estimate the option prices. |
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