Selected article for: "model extend and random walk model"
Author: Hu, Yuan; Shirvani, Abootaleb; Lindquist, W. Brent; Fabozzi, Frank J.; Rachev, Svetlozar T.
Title: Market Complete Option Valuation using a Jarrow-Rudd Pricing Tree with Skewness and Kurtosis
  • Cord-id: e5j2ay0g
  • Document date: 2021_6_16
    • ID: e5j2ay0g
    Snippet: Applying the Cherny-Shiryaev-Yor invariance principle, we introduce a generalized Jarrow-Rudd (GJR) option pricing model with uncertainty driven by a skew random walk. The GJR pricing tree exhibits skewness and kurtosis in both the natural and risk-neutral world. We construct implied surfaces for the parameters determining the GJR tree. Motivated by Merton's pricing tree incorporating transaction costs, we extend the GJR pricing model to include a hedging cost. We demonstrate ways to fit the GJR
    Document: Applying the Cherny-Shiryaev-Yor invariance principle, we introduce a generalized Jarrow-Rudd (GJR) option pricing model with uncertainty driven by a skew random walk. The GJR pricing tree exhibits skewness and kurtosis in both the natural and risk-neutral world. We construct implied surfaces for the parameters determining the GJR tree. Motivated by Merton's pricing tree incorporating transaction costs, we extend the GJR pricing model to include a hedging cost. We demonstrate ways to fit the GJR pricing model to a market driver that influences the price dynamics of the underlying asset. We supplement our findings with numerical examples.

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