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A Time Series Approach to Option Pricing

Models, Methods and Empirical Performances

  • Book
  • © 2015

Overview

Authors:
  1. Christophe Chorro

    1. Maison des Sciences Economiques, Université Paris 1 Panthéon Sorbonne Centre d'Economie de la Sorbonne, Paris, France

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  2. Dominique Guégan

    1. Maison des Sciences Economiques, Université Paris 1 Panthéon Sorbonne Centre d'Economie de la Sorbonne, Paris, France

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  3. Florian Ielpo

    1. Lombard Odier Darier Hentsch & Cie, Genève, Switzerland

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  • A unique presentation of a new approach to option pricing

  • Useful and replicable information for audiences having limited to advanced knowledge on option pricing

  • Provides actual applications to real option prices, along comparison of the methods with existing competing approaches

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Table of contents (4 chapters)

  1. Front Matter

    Pages i-xvi
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  2. Introduction

    • Christophe Chorro, Dominique Guégan, Florian Ielpo
    Pages 1-9

  3. The Time Series Toolbox for Financial Returns

    • Christophe Chorro, Dominique Guégan, Florian Ielpo
    Pages 11-66

  4. From Time Series of Returns to Option Prices: The Stochastic Discount Factor Approach

    • Christophe Chorro, Dominique Guégan, Florian Ielpo
    Pages 67-113

  5. Empirical Performances of Discrete Time Series Models

    • Christophe Chorro, Dominique Guégan, Florian Ielpo
    Pages 115-174

  6. Back Matter

    Pages 175-188
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Keywords

About this book

The current world financial scene indicates at an intertwined and interdependent relationship between financial market activity and economic health. This book explains how the economic messages delivered by the dynamic evolution of financial asset returns are strongly related to option prices. The Black Scholes framework is introduced and by underlining its shortcomings, an alternative approach is presented that has emerged over the past ten years of academic research, an approach that is much more grounded on a realistic statistical analysis of data rather than on ad hoc tractable continuous time option pricing models. The reader then learns what it takes to understand and implement these option pricing models based on time series analysis in a self-contained way. The discussion covers modeling choices available to the quantitative analyst, as well as the tools to decide upon a particular model based on the historical datasets of financial returns. The reader is then guided into numerical deduction of option prices from these models and illustrations with real examples are used to reflect the accuracy of the approach using datasets of options on equity indices.

Authors and Affiliations

  • Maison des Sciences Economiques, Université Paris 1 Panthéon Sorbonne Centre d'Economie de la Sorbonne, Paris, France

    Christophe Chorro, Dominique Guégan

  • Lombard Odier Darier Hentsch & Cie, Genève, Switzerland

    Florian Ielpo

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