When

Start: 04/09/2009 - 4:15pm

End : 04/09/2009 - 5:15pm

End : 04/09/2009 - 5:15pm

Category

Statistics/OR/Math Finance Seminar

Speaker

Jean-Pierre Fouque (UCSB)

Abstract

We develop call option price approximations for both the market index and

an individual asset using a singular perturbation of a continuous time

Capital Asset Pricing Model (CAPM) in a stochastic volatility environment.

These approximations show the role played by the asset's beta parameter as

a component of the parameters of the call option price of the asset. They

also show how these parameters, in combination with the parameters of the

call option price for the market, can be used to extract the beta

parameter. Finally, a calibration technique for the beta parameter is

derived using the estimated option price parameters of both the asset and

market index. The resulting estimator of the beta parameter is not only

simple to implement but has the advantage of being forward-looking as it

is calibrated from skews of implied volatilities.

Joint work with Eli Kollman (UCSB)

Where

Beckman Auditorium (Beckman B126)
Thursday April 9 4:15-5:15pm

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