Search Results for american-option-valuation-using-monte-carlo-simulation-under-a-regime-switching-framework

Author: Javier Alberto Hernandez


ISBN: OCLC:708740225


Page: 168

View: 168


Bouchard, B., Temam, E., On the hedging of American options in discrete time markets with proportional ... Boyle, P., Options: a Monte Carlo approach.J. Financ. ... Boyle, P., Draviam, T., Pricing exotic options under regime switching.

Author: Dmitrii S. Silvestrov

Publisher: Walter de Gruyter

ISBN: 9783110329827

Category: Mathematics

Page: 519

View: 816

The book gives a systematical presentation of stochastic approximation methods for models of American-type options with general pay-off functions for discrete time Markov price processes. Advanced methods combining backward recurrence algorithms for computing of option rewards and general results on convergence of stochastic space skeleton and tree approximations for option rewards are applied to a variety of models of multivariate modulated Markov price processes. The principal novelty of presented results is based on consideration of multivariate modulated Markov price processes and general pay-off functions, which can depend not only on price but also an additional stochastic modulating index component, and use of minimal conditions of smoothness for transition probabilities and pay-off functions, compactness conditions for log-price processes and rate of growth conditions for pay-off functions. The book also contains an extended bibliography of works in the area. This book is the first volume of the comprehensive two volumes monograph. The second volume will present results on structural studies of optimal stopping domains, Monte Carlo based approximation reward algorithms, and convergence of American-type options for autoregressive and continuous time models, as well as results of the corresponding experimental studies.
2013-11-27 By Dmitrii S. Silvestrov

The rest of paper is organized as follows. In section 2, we set up our framework of valuing defaultable bond. In section 3, two numerical approaches—finite difference method and Markov Chain Monte Carlo simulation are used to calculate ...


Publisher: American Mathematical Soc.

ISBN: 9780821834121

Category: Business & Economics

Page: 398

View: 460

The mathematics of finance involves a wide spectrum of techniques that go beyond traditional applied mathematics. The field has witnessed a tremendous amount of progress in recent years, which has inspired communication and networking among researchers in finance, economics, engineering, and industry. This volume contains papers based on the talks given at the first AMS-IMS-SIAM joint research conference on financial mathematics. Topics covered include modeling, estimation, optimization, control, risk assessment and management, contingent claim pricing, dynamic hedging, and financial derivative design.

Bodurtha, J.N., and G.R. Courtadon (1987), “Tests of an American pricing model on the foreign currency options market”, Journal of Financial and Quantitative Analysis 22:153−167. Bollen, N.P.B. (1998), “A note on the impact of options ...

Author: G. Constantinides

Publisher: Elsevier

ISBN: 0080495087

Category: Business & Economics

Page: 694

View: 915

Volume 1B covers the economics of financial markets: the saving and investment decisions; the valuation of equities, derivatives, and fixed income securities; and market microstructure.
2003-11-04 By G. Constantinides

... methods have been used to value European and American style options. These methods can be broadly distinguished as:" • methods that approximate the underlying stochastic variables (e.g., binomial trees and Monte Carlo simulation), ...

Author: Alexander Vollert

Publisher: Springer Science & Business Media

ISBN: 9781461220688

Category: Mathematics

Page: 288

View: 227

The theoretical foundation for real options goes back to the mid 1980s and the development of a model that forms the basis for many current applications of real option theory. Over the last decade the theory has rapidly expanded and become enriched thanks to increasing research activity. Modern real option theory may be used for the valuation of entire companies as well as for particular investment projects in the presence of uncertainty. As such, the theory of real options can serve as a tool for more practically oriented decision making, providing management with strategies maximizing its capital market value. This book is devoted to examining a new framework for classifying real options from a management and a valuation perspective, giving the advantages and disadvantages of the real option approach. Impulse control theory and the theory of optimal stopping combined with methods of mathematical finance are used to construct arbitrarily complex real option models which can be solved numerically and which yield optimal capital market strategies and values. Various examples are given to demonstrate the potential of this framework. This work will benefit the financial community, companies, as well as academics in mathematical finance by providing an important extension of real option research from both a theoretical and practical point of view.
2012-12-06 By Alexander Vollert

Unlike the existing studies, which assume the convenience yield to have either a constant value or to have a stochastic behaviour with mean reversion to one equilibrium level, the model of this essay extends the Brennan and Schwartz (1985) ...

Author: Abdullah Al Mansour


ISBN: OCLC:835713292


Page: 140

View: 691

This thesis consists of three essays on risk management in crude oil markets. In the first essay, the valuation of an oil sands project is studied using real options approach. Oil sands production consumes substantial amount of natural gas during extracting and upgrading. Natural gas prices are known to be stochastic and highly volatile which introduces a risk factor that needs to be taken into account. The essay studies the impact of this risk factor on the value of an oil sands project and its optimal operation. The essay takes into account the co-movement between crude oil and natural gas markets and, accordingly, proposes two models: one incorporates a long-run link between the two markets while the other has no such link. The valuation problem is solved using the Least Square Monte Carlo (LSMC) method proposed by Longstaff and Schwartz (2001) for valuing American options. The valuation results show that incorporating a long-run relationship between the two markets is a very crucial decision in the value of the project and in its optimal operation. The essay shows that ignoring this long-run relationship makes the optimal policy sensitive to the dynamics of natural gas prices. On the other hand, incorporating this long-run relationship makes the dynamics of natural gas price process have a very low impact on valuation and the optimal operating policy. In the second essay, the relationship between the slope of the futures term structure, or the forward curve, and volatility in the crude oil market is investigated using a measure of the slope based on principal component analysis (PCA). The essay begins by reviewing the main theories of the relation between spot and futures prices and considering the implication of each theory on the relation between the slope of the forward curve and volatility. The diagonal VECH model of Bollerslev et al. (1988) was used to analyse the relationship between of the forward curve slope and the variances of the spot and futures prices and the covariance between them. The results show that there is a significant quadratic relationship and that exploiting this relation improves the hedging performance using futures contracts. The third essay attempts to model the spot price process of crude oil using the notion of convenience yield in a regime switching framework. Unlike the existing studies, which assume the convenience yield to have either a constant value or to have a stochastic behaviour with mean reversion to one equilibrium level, the model of this essay extends the Brennan and Schwartz (1985) model to allows for regime switching in the convenience yield along with the other parameters. In the essay, a closed form solution for the futures price is derived. The parameters are estimated using an extension to the Kalman filter proposed by Kim (1994). The regime switching one-factor model of this study does a reasonable job and the transitional probabilities play an important role in shaping the futures term structure implied by the model.

Augustyniak (2014) develops a framework exploiting both a Monte Carlo expectation maximization algorithm and importance sampling. Stochastic volatility modelling has also been augmented with Markov switching dynamics.

Author: Sylvia Fruhwirth-Schnatter

Publisher: CRC Press

ISBN: 9780429508868

Category: Computers

Page: 498

View: 814

Mixture models have been around for over 150 years, and they are found in many branches of statistical modelling, as a versatile and multifaceted tool. They can be applied to a wide range of data: univariate or multivariate, continuous or categorical, cross-sectional, time series, networks, and much more. Mixture analysis is a very active research topic in statistics and machine learning, with new developments in methodology and applications taking place all the time. The Handbook of Mixture Analysis is a very timely publication, presenting a broad overview of the methods and applications of this important field of research. It covers a wide array of topics, including the EM algorithm, Bayesian mixture models, model-based clustering, high-dimensional data, hidden Markov models, and applications in finance, genomics, and astronomy. Features: Provides a comprehensive overview of the methods and applications of mixture modelling and analysis Divided into three parts: Foundations and Methods; Mixture Modelling and Extensions; and Selected Applications Contains many worked examples using real data, together with computational implementation, to illustrate the methods described Includes contributions from the leading researchers in the field The Handbook of Mixture Analysis is targeted at graduate students and young researchers new to the field. It will also be an important reference for anyone working in this field, whether they are developing new methodology, or applying the models to real scientific problems.

However using measures which express trading as a percentage of share and option holdings and as changes in ... In this thesis , the optimal behavior of an investor in a Markov , regime - switching environment will be examined .



ISBN: STANFORD:36105123442480

Category: Dissertations, Academic


View: 542

2007 By

Applying a hierarchical Bayesian framework, we show that Reversible Jump Markov Chain Monte Carlo techniques can be used to estimate the parameters of the model, as well as the number of regimes, and to simulate the posterior predictive ...

Author: Francesco Palumbo

Publisher: Springer Science & Business Media

ISBN: 9783642037399

Category: Mathematics

Page: 482

View: 511

The volume provides results from the latest methodological developments in data analysis and classification and highlights new emerging subjects within the field. It contains articles about statistical models, classification, cluster analysis, multidimensional scaling, multivariate analysis, latent variables, knowledge extraction from temporal data, financial and economic applications, and missing values. Papers cover both theoretical and empirical aspects.
2010-03-14 By Francesco Palumbo

Boogert, A. and de Jong, C. Gas storage valuation using a Monte Carlo method, Birkbeck Working Papers in ... Chen, Z. and Forsyth, P. A. Implications of a regime-switching model on natural gas storage valuation and optimal operation.

Author: Markus Burger

Publisher: John Wiley & Sons

ISBN: 9781118618639

Category: Business & Economics

Page: 448

View: 563

An overview of today's energy markets from a multi-commodity perspective As global warming takes center stage in the public and private sectors, new debates on the future of energy markets and electricity generation have emerged around the world. The Second Edition of Managing Energy Risk has been updated to reflect the latest products, approaches, and energy market evolution. A full 30% of the content accounts for changes that have occurred since the publication of the first edition. Practitioners will appreciate this contemporary approach to energy and the comprehensive information on recent market influences. A new chapter is devoted to the growing importance of renewable energy sources, related subsidy schemes and their impact on energy markets. Carbon emissions certificates, post-Fukushima market shifts, and improvements in renewable energy generation are all included. Further, due to the unprecedented growth in shale gas production in recent years, a significant amount of material on gas markets has been added in this edition. Managing Energy Risk is now a complete guide to both gas and electricity markets, and gas-specific models like gas storage and swing contracts are given their due. The unique, practical approach to energy trading includes a comprehensive explanation of the interactions and relations between all energy commodities. Thoroughly revised to reflect recent changes in renewable energy, impacts of the financial crisis, and market fluctuations in the wake of Fukushima Emphasizes both electricity and gas, with all-new gas valuation models and a thorough description of the gas market Written by a team of authors with theoretical and practical expertise, blending mathematical finance and technical optimization Covers developments in the European Union Emissions Trading Scheme, as well as coal, oil, natural gas, and renewables The latest developments in gas and power markets have demonstrated the growing importance of energy risk management for utility companies and energy intensive industry. By combining energy economics models and financial engineering, Managing Energy Risk delivers a balanced perspective that captures the nuances in the exciting world of energy.
2014-09-09 By Markus Burger