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X-WR-CALNAME:Mathematical Finance
X-ORIGINAL-URL:https://www.math.ttu.edu/mathematicalfinance
X-WR-CALDESC:Events for Mathematical Finance
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DTSTART:20240310T080000
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DTSTART:20241103T070000
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DTSTART;TZID=America/Chicago:20241115T140000
DTEND;TZID=America/Chicago:20241115T150000
DTSTAMP:20260427T132410
CREATED:20240729T184547Z
LAST-MODIFIED:20240816T214112Z
UID:1493-1731679200-1731682800@www.math.ttu.edu
SUMMARY:Stochastic dominance\, stochastic volatility\, and jump risk: new theory interprets old results
DESCRIPTION:Speaker: Prof Stylianos Perrakis\, John Molson School of Business\, Concordia Univ\, Montreal \n Abstract: The stochastic dominance (SD) approach is applied to the valuation of index options in frictionless markets for a wide class of stochastic volatility (SV) processes. SD allows for the derivation of a unique\, exponential option pricing kernel based on the physical underlying return and volatility dynamics. A lower bound and an upper bound on option prices are obtained\, for a wide class of stochastic volatility jump (SVJ) processes that feature jumps in addition to diffusion. Using parameter estimates for the physical process from high-profile studies\, the bounds are shown to be remarkably tight\, especially for the empirically important class of short-term near-the-money options. The bounds are in many cases inconsistent with separate parameter estimates for the risk-neutral process that are extracted from observed option prices: for many option series\, the risk-neutral value exceeds the SD upper bound. This inconsistency points at the possibility that the distributional shape of the risk-neutral process is mis-specified or that the parameters are estimated without properly taking the option bid-ask spread into account.
URL:https://www.math.ttu.edu/mathematicalfinance/event/stochastic-dominance-stochastic-volatility-and-jump-risk-new-theory-interprets-old-results/
LOCATION:via Zoom
CATEGORIES:Fall 2024,Seminars
ATTACH;FMTTYPE=image/jpeg:https://www.math.ttu.edu/mathematicalfinance/wp-content/uploads/2024/07/perrakis.jpg
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