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Robert A Jarrow - One of the best experts on this subject based on the ideXlab platform.

  • liquidity risk and classical Option Pricing Theory
    Liquidity Risk Measurement and Management: A practitioner's guide to global best practices, 2012
    Co-Authors: Robert A Jarrow
    Abstract:

    The purpose of this paper is to review the recent derivatives security research involving liquidity risk and to summarize its implications for practical risk management. The literature supports three general conclusions. The first is that the classical Option price is "on average" true, even given liquidity risk. Second, it is well known that although the classical (theoretical) Option hedge can not be applied as Theory prescribes, its discrete approximations often provide reasonable approximations. These discrete approximations are also consistent with upward sloping supply curves. And, third, risk management measures like value-at-risk (VaR) are biased low due to the exclusion of liquidity risk. A simple adjustment for incorporating liquidity risk into standard risk measures is provided.

  • Option Pricing Theory historical perspectives
    Encyclopedia of Quantitative Finance, 2010
    Co-Authors: Robert A Jarrow
    Abstract:

    This article traces the history of the Option Pricing Theory from the turn of the twentieth century to the present. This historical perspective is divided into four sections. The first, entitled “the early years”, discusses the development of Option Pricing Theory before the Black–Scholes–Merton model (1973). The second section discusses the Black–Scholes–Merton model and its extensions. The third section discusses the Heath–Jarrow–Morton model for Pricing interest rate derivatives. The last section discusses credit risk derivative Pricing models. Keywords: Black–Scholes model; HJM model; Option Pricing; interest rate derivatives; credit derivatives

  • Encyclopedia of Quantitative Finance - Option Pricing Theory: Historical Perspectives
    Encyclopedia of Quantitative Finance, 2010
    Co-Authors: Robert A Jarrow
    Abstract:

    This article traces the history of the Option Pricing Theory from the turn of the twentieth century to the present. This historical perspective is divided into four sections. The first, entitled “the early years”, discusses the development of Option Pricing Theory before the Black–Scholes–Merton model (1973). The second section discusses the Black–Scholes–Merton model and its extensions. The third section discusses the Heath–Jarrow–Morton model for Pricing interest rate derivatives. The last section discusses credit risk derivative Pricing models. Keywords: Black–Scholes model; HJM model; Option Pricing; interest rate derivatives; credit derivatives

  • derivative security markets market manipulation and Option Pricing Theory
    World Scientific Book Chapters, 2008
    Co-Authors: Robert A Jarrow
    Abstract:

    AbstractThis paper studies a new Theory for Pricing Options in a large trader economy. This Theory necessitates studying the impact that derivative security markets have on market manipulation. In an economy with a stock, money market account, and a derivative security, it is shown, by example, that the introduction of the derivative security generates market manipulation trading strategies that would otherwise not exist. A sufficient condition is provided on the price process such that no additional market manipulation trading strategies are introduced by a derivative security. Options are priced under this condition, where it is shown that the standard binomial Option model still applies but with random volatilities.

  • chapter 17 liquidity risk and Option Pricing Theory
    Handbooks in Operations Research and Management Science, 2007
    Co-Authors: Robert A Jarrow, Philip Protter
    Abstract:

    Abstract This paper summarizes the recent advances of Cetin [Cetin, U. (2003). Default and liquidity risk modeling. Ph.D. thesis , Cornell University], Cetin et al. [Cetin, U., Jarrow, R., Protter, P. (2004). Liquidity risk and arbitrage Pricing Theory. Finance and Stochastics 8, 311–341], Cetin et al. [Cetin, U., Jarrow, R., Protter, P., Warachka, M. (2006). Pricing Options in an extended Black Scholes economy with illiquidity: Theory and empirical evidence. Review of Financial Studies 19 (2), 493–529], Blais [Blais, M. (2006). Liquidity and data. Ph.D. thesis , Cornell University], and Blais and Protter [Blais, M., Protter, P. (2006). An analysis of the supply curve for liquidity risk through book data, in preparation] on the inclusion of liquidity risk into Option Pricing Theory. This research provides new insights into the relevance of the classical techniques used in continuous time finance for practical risk management.

Zhang Neng - One of the best experts on this subject based on the ideXlab platform.

  • The application of Option Pricing Theory to the evaluation of mining investment
    2020
    Co-Authors: Zhang Neng
    Abstract:

    A rational evaluation on an investment project forms the basis of a right investment decision making. The discounted cash flow (DCF for short) method is usually used as a traditional evaluation method for a project investment. However, as the mining investment is influenced by many uncertainties, DCF method cannot take into account these uncertainties and often underestimates the value of an investment project. Based on the Option Pricing Theory of the modern financial assets, the characteristics of a real project investment are discussed, and the management Option of mine managers and its Pricing method are described.

  • application of real Option Pricing Theory to evaluation of coal resources investment projects
    Journal of China Coal Society, 2002
    Co-Authors: Zhang Neng
    Abstract:

    Investment in coal resources engineering projects has characteristics of long investment period, irreversibility and high uncertainty. Traditional evaluation method for these projects investment is Net Present Value (NPV) or Discounted Cash Flow (DCF) method. This method cannot be involved the coal resources investment uncertainty produced by long investment peroid, great price fluctuation and etc. Therefore it overlooks investment opportunity value of mining projects and underestimates the investment value of coal resources engineering projects. Based on the Real Option Pricing Theory, investment opportunity value under uncertainty is discussed and the models for valuing investment opportunity with characteristics of coal resources projects investment are set up as a new method for investment decision making.

Martin Zettl - One of the best experts on this subject based on the ideXlab platform.

  • valuing exploration and production projects by means of Option Pricing Theory
    International Journal of Production Economics, 2002
    Co-Authors: Martin Zettl
    Abstract:

    Abstract This paper provides a general introduction to the valuation of investment projects with Option Pricing Theory (OPT). Furthermore, a specific application of OPT to value exploration and production-projects in the petroleum industry is shown. To model the various nested Options of such investments, the discrete approach of the binomial model is preferred to the continuous model by Black and Scholes. Furthermore, two kinds of binomial trees are used. One tree represents the pre-drilling period and the other represents the production phase of the reservoir. Due to the use of a multiplicative binomial process for the oil price trend, unrealistic prices may occur. To exclude them from the calculation an oil price band is introduced. Additionally, uncertainty of all input parameters, not only of the oil price, is considered. This is achieved by combining OPT with the Monte Carlo simulation.

  • Extending the Option Pricing Theory for the valuation of E&P projects
    SPE Annual Technical Conference and Exhibition, 2000
    Co-Authors: Martin Zettl
    Abstract:

    Etude de l'utilisation de la theorie de formation des prix des Options pour evaluer les projets d'investissement dans le secteur de la prospection et de la production de petrole. Analyse des avantages et des limites des modeles discrets qui ont recours a deux types d'arbre binomial pour decrire les phases de pre-forage et de production.

Jack S K Chang - One of the best experts on this subject based on the ideXlab platform.

  • information time Option Pricing Theory and empirical evidence
    Journal of Financial Economics, 1998
    Co-Authors: Carolyn W Chang, Jack S K Chang
    Abstract:

    Abstract With a stochastic time change from calendar-time to information-time, we derive a parsimonious Option Pricing formula with stochastic volatility as a risk-neutral Poisson sum of Merton's (1973) prices over the Option's information-time maturity domain. The formula contains two unobservable parameters, information arrival intensity and information-time asset volatility, with stochastic volatility induced by random information arrival. When the information arrival rate intensifies, the Option price increases and vice-versa. We test the formula in Pricing, hedging, and excess profits capture empirically using currency and the S&P 500 futures Options transaction data.

Yang Shan-chao - One of the best experts on this subject based on the ideXlab platform.